Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

South Africa

Mr. Luard: asked the Secretary of State for Foreign and Commonwealth Affairs if he now plans to pay an official visit to South Africa.

Mr. Kinnock: asked the Secretary of State for Foreign and Commonwealth Affairs if he now plans to make an official visit to the Republic of South Africa.

The Secretary of State for Foreign and Commonwealth Affairs (Mr. James Callaghan): Such a visit is not part of my proposed tour which will start on 30th December.

Mr. Luard: Is it not a fact that in about a fortnight's time the Foreign Secretary will find himself very close to South Africa? Might it not be a good idea to extend his travels a little to make it clear to the Government of that country that, although many people in this country welcome any initiative on Rhodesia which is likely to bring about a fair and just settlement of the constitutional problem there, many of us would also hope to see further moves by the South African Government in relation to Namibia and her own policies at home and that, if our Government are to continue to give her the support that we have been giving in the United Nations, we should expect to see further progress made in those areas too?

Mr. Callaghan: I agree with my hon. Friend's sentiments, but this visit was planned some time ago as a visit to a

number of Commonwealth countries and South Africa is not a part of the Commonwealth. I would only add that in the United Nations we have been supporting not South Africa but the principle of universality of the United Nations, which is a different matter.

Mr. Biggs-Davison: If there is now the hope of easement of relations between the countries of Southern Africa and countries north of the Zambesi, is not this in great measure due to South African diplomacy and the technical and economic assistance that South Africans can and do give to other parts of Africa?

Mr. Callaghan: We should pay tribute to the efforts of all who have done anything to ease the situation in Southern Africa, including the three Presidents of the Commonwealth whom I shall be visiting. As to the part that South Africa plays, we all welcome anything that she can do to bring home the facts of life to Mr. Smith.

Ethiopia

Rear-Admiral Morgan-Giles: asked the Secretary of State for Foreign and Commonwealth Affairs what information he has concerning the safety of British subjects in Ethiopia.

The Under-Secretary of State for Foreign and Commonwealth Affairs (Miss Joan Lestor): Information available to me at present does not suggest that the safety of British subjects in Ethiopia is currently endangered. But the situation there is one which gives us some cause for concern and the British Embassy is watching it closely.

Rear-Admiral Morgan-Giles: I thank the hon. Lady for that reply. Has she any information concerning the fate of Emperor Haile Selassie and his family, who have been good friends to this country over a long period?

Miss Lestor: I understand that the former Emperor, several members of his family and 200 or so other people in detention in Addis Ababa were recently visited by representatives of the International Committee of the Red Cross, who found the former Emperor in reasonably good health. Hon. Members will also have noticed recent assurances by the provisional military Government that


remaining detainees will be given a fair trial.

Sir Bernard Braine: Is the hon. Lady aware that in Ethiopia there is a long and honourable tradition of kindness and hospitality towards all foreigners and especially towards British members of voluntary agencies who have been engaged in work in that country, especially since the terrible famine of last year? Is she further aware that all Members of this House—I am speaking of well over 200 of them—who have signed the recent early-day motion are grateful to the Government for the efforts they have made in conjunction with other Governments and the United Nations to prevail upon the provisional military Government to treat political detainees with humanity and that we shall continue to welcome any further efforts that Her Majesty's Government make in that direction?

Miss Lester: I thank the hon. Gentleman for those remarks and I share his view.

Export Promotion

Mr. Aitken: asked the Secretary of State for Foreign and Commonwealth Affairs what proportion of British diplomats serving in Her Majesty's embassies overseas are engaged in furthering British exports.

The Minister of State for Foreign and Commonwealth Affairs (Mr. David Ennals): About one-quarter of our diplomatic staff overseas are engaged full time on export promotion. Many of our other diplomats also contribute to the work of furthering British exports, which is a first charge on the resources of the Diplomatic Service.

Mr. Aitken: Is the Minister aware that the overwhelming majority of commercial secretaries in British Embassies abroad are in the B grade of the Diplomatic Service? Can he explain why so many commercial secretaries should be given this apparent career disadvantage of second-class status, particularly at a time when British exports are so important? Will he take steps to sweep away these unnecessary distinctions between Foreign Office personnel doing equally important jobs?

Mr. Ennals: I would not accept the suggestion that these people are in any

way second-class citizens. Some of them in fact hold high status in the Diplomatic Service. I shall look into the points that the hon. Gentleman has raised, but we greatly respect and admire, as well as encourage, the work which is done by these members of the Diplomatic Service.

Mr. Craigen: Are these members specially chosen for their commercial experience?

Mr. Ennals: Those to whom I am referring at present are mostly career diplomats. Sometimes people are seconded from the Department of Trade. They have special training before they go, which includes work with commercial firms, and they are chosen because of knowledge of the market concerned. But we are greatly increasing the number who are locally recruited, and are recruited because of their commercial knowledge, in the country in which they are serving.

Indian Ocean Territory

Mr. Mather: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement about Her Majesty's Government's policy towards the British Indian Ocean Territories.

Mr. Ennals: The British Indian Ocean Territory is a separate dependency of the Crown. By an agreement signed in December 1966 the islands were made available for the defence purposes of the British and American Governments. No change in Her Majesty's Government's policy is contemplated.

Mr. Mather: Will the right hon. Gentleman give a clear assurance that he intends to maintain the integrity of the British Indian Ocean Territories, lying as they do across very important air and sea routes to the Persian Gulf and Hong Kong? Will he say something about the facilities at Gan—whether they will be completely written off and whether alternative facilities exist? What will happen in the Seychelles once independence is negotiated? Are we negotiating a long-term agreement? Will the right hon. Gentleman—

Mr. Speaker: Order. That is four questions already.

Mr. Ennals: The answer to the hon. Gentleman's first question is that there is certainly no intention of making any change in the status of the territories concerned. My right hon. Friend the Secretary of State for Defence made a statement which concerned Gan. I cannot further elaborate on that. It is a matter for my right hon. Friend. In relation to the question about the Seychelles, of course all relevant questions will be considered by the constitutional conference on the Seychelles which, as the hon. Gentleman will know, is being held shortly.

Mr. Frank Allaun: Have not the Governments of the nations surrounding the Indian Ocean expressed an intense wish that neither the Russian nor the American navies should be present in the area? Therefore, will not the British Government reconsider the leasing of the base at Diego Garcia to the Americans, who propose to spend £12 million—not dollars, but pounds—on developing it as a nuclear base?

Mr. Ennals: I cannot give any such assurance to my hon. Friend. A decision has been taken and it was announced by my right hon. Friend the Secretary of State for Defence. But there is no doubt that countries in the area are concerned about the build-up of naval vessels. Certainly we and the Americans have agreed to consult on arms limitation in the Indian Ocean. We shall also continue discussions with other countries in that area, some of which, such as Australia, have made important proposals.

Namibia

Mr. loan Evans: asked the Secretary of State for Foreign and Commonwealth Affairs what further progress has been made in Her Majesty's Government's examination of the question of Namibia.

Miss Joan Lestor: I refer my hon. Friend to my right hon. Friend's statement in the House on 4th December.— [Vol. 882, c. 1555–64.]

Mr. Evans: My hon. Friend will have seen the text of the resolution which was carried unanimously in the Security Council yesterday condemning the South African's illegal occupation of Namibia. Will she convey to the Foreign Secretary

the wish that when he travels to meet Commonwealth leaders in Africa—we wish him well on the journey—he should consult African leaders with a view to persuading them to use their good offices to ensure that the South African Government negotiate with SWAPO to bring in the immediate independence of Namibia at the earliest possible date, and certainly before 30th May next, which is the date contained in the resolution?

Miss Lestor: My right hon. Friend will be meeting SWAPO leaders in Lusaka when he goes there. We have already said that we consider the South African occupation of Namibia unlawful and that we hope to see an independent Namibia as soon as possible.

Mr. Cormack: Does not the question of the hon. Member for Aberdare (Mr. Evans) show it to be all the more absurd that when the Foreign Secretary is paying a visit to Africa he should miss out what is by any standard one of the most important nations in that continent? Will the hon. Lady persuade her right hon. Friend to think again and go to South Africa and discuss this and many issues of burning importance?

Miss Lestor: Nothing that my right hon. Friend does is absurd. It is up to him whether or not he visits South Africa.

Libya

Mr. Grylls: asked the Secretary of State for Foreign and Commonwealth Affairs when he next plans to visit Libya.

Mr. Goodhart: asked the Secretary of State for Foreign and Commonwealth Affairs if he will pay an official visit to Libya.

Mr. Ennals: My right hon. Friend has no plans to visit Libya.

Mr. Grylls: If the Foreign Secretary does meet members of the Libyan Government, will he pursue with them very vigorously the case of my 83-year-old constituent who has lost everything in Libya, and will he let me know what their reaction is to her very just claim which has been pursued for a long time? Will he draw to the attention of the


Libyan Government the fact that her claim is very modest compared with the £17·4 million which is to be paid in cash to BP any moment now?

Mr. Ennals: As the hon. Gentleman knows from the Adjournment debate in May, I am personally very well aware of the difficulties which Mrs. Starkings is facing, and I have a great deal of sympathy for her. I assure the hon. Gentleman that we shall continue, as we have done previously, to press the Libyan Government to give urgent consideration to her case.

Mr. James Johnson: I do not particularly want the Minister to visit Libya, but is he aware that I do want him or any of his ministerial colleagues in the Department to visit the Horn of Africa? During the last 10 years, particularly since the independence of Somalia, no British Minister has been there. In view of the opening of the Suez Canal next March and the designation of the Indian Ocean as a zone of peace, as well as many other factors, could not one Minister, when moving about on the usual line—Lusaka, Dares-Salaam and Nairobi—go to the northeast and have a look at that part of the world?

Mr. Ennals: Many of us go beyond the usual line to which my hon. Friend has referred. But I shall look at his suggestion. The demands upon my right hon. and hon. Friends and myself are fairly heavy in terms of travel, but I shall bear in mind my hon. Friend's suggestion.

Mr. Goodhart: As it has been estimated that Libya is now contributing more than £5 million a year to various terrorist organisations, including the Provisional wing of the IRA, may I ask what protests we have made in the last 12 months about Libya's anti-social behaviour?

Mr. Ennals: We have made it very clear to the Libyan Government that we regard Libyan support for the IRA as blatant interference in the internal affairs of the United Kingdom. There are certainly indications that the IRA may have received some aid and training from Libya. I think that the whole House would deplore that situation.

Mr. Colin Jackson: Does my right hon. Friend agree, however, that Britain has important commercial interests and educational links in Libya and that, therefore, it is very important, despite the natural disquiet about certain matters which have been mentioned, that we should maintain contact with Libya and indeed, in certain circumstances, make a ministerial visit?

Mr. Ennals: I agree with my hon. Friend. We certainly want to maintain contact with the Libyan Government and to maintain a good relationship. There are important outstanding issues. One of them, happily, has been settled in the agreement which has been reached between the Libyan Government and BP concerning the outstanding claims. This was an important step forward. Certainly we hope that it will be followed by others.

Civil Rights Covenants

Mr. Michael Marshall: asked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a statement outlining the progress made towards ratification of the International Covenant on Civil and Political Rights adopted by the United Nations General Assembly in 1966.

Mr. Guy Barnett: asked the Secretary of State for Foreign and Commonwealth Affairs how soon he expects Great Britain will ratify the International Covenant on Civil and Policital Rights.

Mr. Ennals: We are actively considering the question of the ratification of both the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights.

Mr. Marshall: Is the Minister aware that it is over six years since we signed the original covenant? Is he further aware that with the evidence of increasing torture in the world at large, and indeed the whole problem of terrorism in the world, the one way in which this country could give a lead in many of these matters would be to move with some speed on this ratification? Does he accept that his letter to me of 25th November, in which


he said that he was proceeding with all reasonable speed bearing in mind the complexity of the question, does not satisfy any of us?

Mr. Ennals: I am glad that it does not satisfy the hon. Gentleman. When I took my place at the Foreign Office I had to brush the dust off the covenant which, as he says, had been signed six years ago. There was not much evidence that it had been looked at in the previous four years until we came to office. But we are giving it serious consideration. It so happens that the British Government do not believe in ratifying covenants unless we are absolutely satisfied that we can stand by them.

Mr. Barnett: Why have so many years elapsed before the Government have seen fit to ratify this covenant? What has stood in the way? May we have a little more information about this?

Mr. Ennals: First, I cannot account for the four years that preceded our arrival in office in March—except for the dust. There has been a great deal of intensive activity in trying to deal with the many complex problems. I should be very happy to discuss this matter with my hon. Friend, but I cannot do so at Question Time because it would take too long. There are many problems relating to both law and practice in the United Kingdom and the dependent territories.

Mr. Russell Johnston: In considering this matter, are the Government giving consideration also to the optional protocol to the International Covenant on Civil and Political Rights, which would allow individuals to make petition to the Human Rights Commission?

Mr. Ennals: We are considering that matter as well as both the two declarations.

Uganda

Mr. Townsend: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on his present policy towards General Amin's regime in Uganda.

Miss Joan Lestor: Our policy in Uganda, as elsewhere, is to protect and promote British interests.

Mr. Townsend: Can the House be told what is the current position regarding

compensation talks? Do the Government seriously think that Uganda will be in any position to honour any agreement that is reached?

Miss Lestor: We continue to remind the Ugandans of their obligation to pay prompt, adequate and effective compensation for all British properties expropriated in Uganda. Uganda has acknowledged this obligation, and official talks took place in Kampala in September, but I have no further report on the present situation following those talks.

Mr. Farr: Is it not about time that we took a more robust attitude with Uganda and made it clear to General Amin that his policies are intolerable as far as we are concerned? Moreover should we not, temporarily at any rate, withdraw our High Commission offices?

Miss Lestor: I do not think that anybody on this side of the House has done anything other than show a great deal of concern for the policies of General Amin. We are not in any way condoning anything he has done. With regard to the withdrawal of our mission, although it is depleted our High Commission is still able to protect British interests and at the moment we see advantage in maintaining a diplomatic presence in Kampala as long as there is effective work to be done there. We are watching the situation.

Namibia (Military Bases)

Mr. Hooley: asked the Secretary of State for Foreign and Commonwealth Affairs if he will raise in the United Nations Security Council the threat to peace in Southern Africa arising from new military bases set up in Namibia by South Africa at Grootfontein, Unono, Ondangua airport, Ruacana, and Een-hana in Oliavango.

Miss Joan Lestor: No, Sir.

Mr. Hooley: Is my hon. Friend aware that I very much welcome the unanimous resolution of the Security Council requiring South Africa to give up its illegal occupation of Namibia? Is she further aware, however, that if the United Kingdom and the United States do not exercise effective pressure on South Africa over this and related matters, the chance of a savage and bloody confrontation in


southern Africa, along the lines of Mozambique and Angola, will thereby be increased?

Miss Lestor: I am very mindful of what my hon. Friend says. All I can add to it is that we have made perfectly clear to the South African Government, and publicly, that we are anxious to see early progress towards self-determination and independence, and we shall continue to support the United Nations where we can in its efforts to help the people of Namibia to achieve that.

Mr. Mather: If the Foreign Secretary wishes to influence the policy of South Africa, will he take a leaf out of the book of Dr. Banda, who made a State visit there recently and who has done more to influence South Africa's policy on apartheid than any other outside statesman has done?

Miss Lestor: My right hon. Friend has already indicated his attitude concerning a visit to South Africa. On the question of apartheid and the effectiveness of certain visits, I should like to see some results as far as a deterioration in apartheid is concerned, and I do not yet see them.

Southern Africa

Mr. Luce: asked the Secretary of State for Foreign and Commonwealth Affairs whether he proposes to visit the major countries of Southern Africa.

Mr. James Callaghan: Yes, Sir. I have announced plans which were made some time ago to visit a number of countries in Southern Africa.

Mr. Luce: Since there is growing and valuable contact between the black and white Africa leaders, will the Foreign Secretary consider exiling himself for an even longer period to look at the real problems of the Southern African States —South Africa itself, Rhodesia and elsewhere—in order to try to see whether he can facilitate in particular a settlement in Rhodesia? Will he, in the process, consider facilitating a Rhodesian settlement by offering a substantial aid programme, if possible with the help of Common Market countries, to the African community in Rhodesia to

improve its standards at a rapid pace? Would not this meet with the approval of both the European and the Africans in Rhodesia?

Mr. Callaghan: If there is any prospect of achieving a settlement in Rhodesia, which I would very much welcome, as I think the whole House would, on the terms of the Six Principles, I would certainly hope that as part of such a settlement there could be a crash programme or a substantial programme of educational aid. There are a large number of African children who by their intelligence and ability qualify to go to secondary schools but do not go to such schools. This would be one of the ways in which we could be of considerable assistance.

Mr. Rippon: Will the Foreign Secretary make clear that he would not rule out a visit to South Africa if he felt that it would help to promote a settlement in Rhodesia?

Mr. Callaghan: Of course I will not rule it out. But this obsessive interest by Opposiiton Members about whether I go to South Africa is a little tedious against the background of reality. Of course I have taken note of what has been said, and I shall do what is necessary, but I planned my visit to talk to the Commonwealth Prime Ministers about a number of topics of which Rhodesia would be one—an important one but not the only one—and we shall consider, after I have had discussions with them, what other initiatives would be helpful in the situation.

Mutual Force Reductions (Talks)

Mr. Robin F. Cook: asked the Secretary of State for Foreign and Commonwealth Affairs if he is satisfied with the progress of the Vienna talks on mutual force reductions.

The Minister of State for Foreign and Commonwealth Affairs (Mr. Roy Hattersley): The discussions in Vienna are proceeding steadily and in businesslike fashion. It would be unrealistic to expect early results in a negotiation of such complexity.

Mr. Cook: I am grateful to my hon. Friend for that reply, but can he tell the House something of the British attitude


to the Dutch proposal to include tactical nuclear weapons in the discussion? Is he aware of growing public unease that a large number of these weapons are deployed in Central Europe? Does he appreciate that if there were to be a reduction in conventional forces which did not affect the number of nuclear weapons we would be in danger of seriously lowering the nuclear threshold?

Mr. Hattersley: I have no comment to make on the statement by the Dutch Minister of Defence about 10 days ago. I would make clear to my hon. Friend, however, that the British Government take a position in these discussions that we co-ordinate with our allies, and a co-ordinated allied position does not include the proposition that nuclear weapons should be included at this stage.

Mr. Cormack: In view of the defence review proposals, will the hon. Gentleman accept that it is absolutely essential that any force reductions are really mutual and balanced, and, therefore, that even if the talks last for years we must not cut back our defence any more than we have done in the past few weeks?

Mr. Hattersley: The essential element in the talks is that they shall be mutual and balanced and that a reduction in armament spending should be and might be obtained by each side—the Warsaw Pact and NATO—without a reduction of the security of any one of the nations involved in the talks. That is the principle on which the talks were founded, and that is the principle on which we are continuing to participate in them.

Mr. Frank Allaun: Is there not good sense in the proposal of my hon. Friend the Member for Edinburgh, Central (Mr. Cook)? Has not even Dr. Schlesinger said that the MBFR talks are the obvious forum for discussing this exact proposal, particularly since this item has been removed as a concession by the Soviet Government in the SALT talks which are taking place elsewhere?

Mr. Hattersley: There is obvious good sense in any reduction in armaments and arms spending which can be effected without a consequent reduction of security for any one party to the talks. We do

not want to make judgments on whether those dual aims can be achieved until we have looked very carefully at any one element in the talks.

Middle East (EEC Talks)

Mr. Leslie Huckfield: asked the Secretary of State for Foreign and Commonwealth Affairs what further consultations he has had with EEC Ministers in connection with the Middle East; and whether he will make a statement.

Mr. James Callaghan: The Foreign Ministers of the Nine continue to keep various aspects of the Middle East situation under review. Our endeavour is to concert a common attitude, but we are not always successful.

Mr. Huckfield: I thank my right hon. Friend for that reply. Since the outcome of the Martinique talks between President Ford and President Giscard d'Estaing have not exactly been too successful with regard to the Middle East, and since my right hon. Friend is, I accept, very much in favour of preserving a common European approach on the Middle East, will he now do all within his power to ensure a common European line in defence of the right of the State of Israel to exist within secure boundaries?

Mr. Caliaghan: Yes, certainly. I do not think that is challenged by any member of the Nine. We are still basing ourselves on Resolutions 242 and 338. They continue to be the bedrock until further changes are made at the United Nations.

Mr. Grylls: Is the Foreign Secretary pressing the EEC to give further aid to relieve the plight of the Palestinian refugees in their camps, as has been done before? Are we pushing that forward?

Mr. Callaghan: I cannot recall a recent discussion on the subject of aid to the Palestinian refugees in particular, but the EEC has substantially increased its aid to the United Nations fund which was set up last April. However, I think that that is a separate issue.

Mr. Faulds: Since my right hon. Friend is a pragmatic and patriotic fellow, will he agree that we and our European allies are taking a much more realistic attitude towards energy problems than is the


American State Department, and will he seek to avoid at all costs a confrontation in this matter with the oil-producing countries?

Mr. Callaghan: Although I have seen reports about the opinions of various people, it is not my understanding from my conversations with the United States Secretary of State that he in any way desires a confrontation with the Arab States, and neither is his policy based on that. It is based on an attempt, in which he has been successful so far—I shall certainly give him all the support which the British Government can give in the next steps—to try to achieve a just settlement in the Middle East.

Mr. Rippon: Will the Foreign Secretary give the House more information about the formation of the International Energy Agency, which is a good example of co-operation within the Community? Will he, perhaps, consider a White Paper or a statement on the subject, because, as I am sure he appreciates, this agency is more supranational in character than, for example, the European Community itself?

Mr. Callaghan: Yes, Sir, I shall consider that. It may be that the Secretary of State for Energy might provide it. I regret that France is not involved, because I think that we should be that much stronger if she were, but it is an excellent example of pooling of resources by the Western consuming nations in the event of any attempt to use the oil weapon. It means an abandonment of sovereignty, but I do not think that any hon. Member minds abandoning sovereignty if the benefits are worth it, and in the case of this agency they are.

European Security and Co-operation

Mr. Sproat: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the latest progress of the Conference on Security and Co-operation in Europe.

Mr. Hattersley: The latest news from Geneva is encouraging, and I hope that further progress will be made on the declaration of principles and in basket III before the Christmas break in the work of the conference.

Mr. Sproat: I welcome the progress that has been made, in particular the agreement of the Soviet authorities at last to the reunification of families, but will the Minister see to it that the allies remain absolutely firm in demanding more progress on the military confidence-building measures, and in particular on the giving of advance notice of troop manoeuvres, since this is about the only security element in what is at least partly a security conference?

Mr. Hattersley: The hon. Gentleman is quite right; the major security element in the conference now is the confidence-building aspect of it, and the notification of manoeuvres is an essential part of that. The British Government, as part of the Western co-ordinated attitude on these matters, will continue to press for satisfactory answers in that area.

International Women's Year

Mrs. Renée Short: asked the Secretary of State for Foreign and Commonwealth Affairs what allocation of funds has now been made by the United Kingdom for International Women's Year.

Mr. Ennals: I have carefully considered this matter once more but regret that I have nothing to add to the reply I gave to my hon. Friend on 27th November.—[Vol. 882, c. 416.]

Mrs. Short: If my right hon. Friend finds that he is short of money in wishing to give more to International Women's Year, will he consider ending the grant of £20,000 a year to the European Movement, which is campaigning against our party's policy, and give that money instead to International Women's Year, which is campaigning for this party's policy of peace and equality? Will he think about that?

Mr. Ennals: I have no doubt that the main substance of my hon. Friend's question will be dealt with under Question No. 34. It is true that we are short of money. I wish that it had been possible to give a rather larger grant to International Women's Year.

Mr. Lane: If, or when, the proposal for an international men's year comes forward, will the Government look favourably upon it?

Mr. Ennals: I think that I assured hon. Members opposite on the last occasion when this matter arose at Question Time that, as far as I can see, every year up to now has been international men's year.

Mr. William Hamilton: Will these funds apply also to the women in the EEC?

Mr. Ennals: There are women in the EEC, and we do not discriminate against them.

Foreign Governments (Recognition)

Mr. Cryer: asked the Secretary of State for Foreign and Commonwealth Affairs if he will outline the criteria adopted by the Government for recognition of a foreign Government.

Mr. Ennals: The criteria for recognition of a foreign Government are that it enjoys, with a reasonable prospect of permanency, the obedience of the mass of the population and the effective control of much the greater part of the territory.

Mr. Cryer: Will my right hon. Friend confirm that an important element in the failure to recognise the Provisional Revolutionary Government in South Vietnam is the boundary question? If that be the question, why do we recognise the Thieu regime, in whose case conformity with the criteria seems sadly lacking? If the objection is on political grounds, why do we recognise so many politically objectionable regimes, such as those in Spain—

Mr. Cormack: And Russia.

Mr. Cryer: —South Africa, China and, for that matter, Russia?

Mr. Ennals: In Her Majesty's Government's view the question of recognition has never been one of judgment of the politics of the country concerned. We have recognised what is. As regards Vietnam, we have recognised the Government in the North and the Government in the South. In the southern part of Vietnam, the PRG controls only a small part of the territory and an even smaller percentage of the population.

Falkland Islands

Mr. Gow: asked the Secretary of State for Foreign and Commonwealth

Affairs whether he will make a statement on the constitutional future of the Falkland Islands.

Mr. Ennals: Last January the Governor appointed a Select Committee from the elected members of the Falkland Islands Legislative Council to ascertain the views of the electorate on possible changes in the constitution and to make recommendations on the form such changes might take. It has yet to make its report.

Mr. Gow: What discussions have the Government had with the Government of the Argentine about the future status of the Falkland Islands?

Mr. Ennals: There have been several discussions between Ministers of Her Majesty's Government and Ministers of the Argentine, one occasion being as recent as last week. It is the wish of both Governments to keep in touch, and I assure the House that it remains the policy of this Government, as of previous Governments, that no change in the present British sovereignty over the Falkland Islands shall be made against the wishes of the islanders.

Mr. James Johnson: My right hon. Friend's last statement will give great satisfaction to all hon. Members—at least, I hope so—and to the Falkland islanders too. Will he be good enough to tell us about the future of the airfield, which I understand is to cost about £4 million? Even more importantly, can he confirm or deny that there is an important oilfield lying between the Falklands and Patagonia?

Mr. Ennals: I am afraid that I cannot give the date for the airfield. As regards oil, geophysical surveys of possible oil-bearing areas around the Falkland Islands were carried out during the last southern summer. Until the evaluation of the results of those surveys is available, I can give no indication on whether the rumours are correct.

Cyprus

Mr. Dodsworth: asked the Secretary of State for Foreign and Commonwealth Affairs what progress has been made with the implementation of United Nations Security Council resolutions 353 and 360 concerning the future of Cyprus.

Mr. R. C. Mitchell: asked the Secretary of State for Foreign and Commonwealth Affairs what further initiatives he proposes to try and attain a settlement of the Cyprus dispute.

Mr. James Callaghan: Talks have taken place on humanitarian issues between Mr. Clerides and Mr. Denktash, but no progress has been made on political matters. I had discussions with the Greek and Turkish Foreign Ministers last week with a view to facilitating these.

Mr. Dodsworth: I am grateful to the right hon. Gentleman for that reply, but can he reconcile the reports of the supply of a British-made computer to those directing Turkish troops in Cyprus with his declared intention to protect the interests, property and security of all citizens in Cyprus, whether British, Turkish or Greek?

Mr. Callaghan: I must ask the hon. Gentleman to put down a Question about the computer. I was not aware of it until he spoke.

Mr. Mitchell: Docs my right hon. Friend think that the return of Archbishop Makarios will make a settlement in Cyprus easier or more difficult to obtain?

Mr. Callaghan: The Archbishop has been making a number of visits in the island and has seen for himself the conditions in which the refugees are living and the division which has taken place in the island. I am sure that he will lend his great weight to a settlement of these issues, which will benefit all the people there.

Mr. Gorst: Will the Foreign Secretary indicate when the refugees in the British bases are likely to be released to go where they wish?

Mr. Callaghan: We certainly do not wish that the refugees should be held in the British bases. Their homes are mostly in Greek-occupied territory. If Mr. Clerides and Mr. Denktash can begin discussion on these political matters, I would hope that this would be the kind of settlement they would get down to as an item of priority?

Mr. Dalyell: May I draw to my right hon. Friend's attention the strong view of the Cypriot communities in Glasgow

and Edinburgh that everything should be done to prevent partition?

Mr. Callaghan: In all my conversations, both Greek and Turkish Cypriot leaders in Cyprus and the Greek and Turkish Foreign Ministers have always emphasised that they have no desire to see the island partitioned.

Oral Answers to Questions — EUROPEAN ECONOMIC COMMUNITY

Trade Balance

Mr. Buchanan: asked the Secretary of State for Foreign and Commonwealth Affairs if he will take account of the deficit in trade between the United Kingdom and the EEC partners, as stated by the Secretary of State for Trade on 18th November, in his renegotiation of the terms of United Kingdom membership.

Mr. James Callaghan: The country's trade deficit is a matter for serious concern wherever it arises. Since 1971 there has been a general deterioration in Britain's non-oil trade gap with a number of important trading partners and all these factors will be taken into account.

Mr. Buchanan: Does my right hon. Friend find that this deficit weakens his hand in renegotiation with the EEC? Is the deficit unique among our partners in the EEC? How does it compare with our increasing deficits with other countries?

Mr. Callaghan: I do not find that the deficit weakens our negotiating hand. Other countries have a large deficit too, although Germany is in substantial surplus. On the second part of the question I have to report a genuine deterioration. Our non-oil trade gap with the EEC has increased fivefold between 1971 and 1973, with EFTA it has increased threefold, with the Commonwealth it has increased thirteenfold and with the United States it has increased by 17 times.

Mr. Scott-Hopkins: Does the Foreign Secretary agree that membership of the Community has greatly benefited our trade and that because of the lowering of trade barriers between Britain and the EEC we have obviously increased trade with the Community, much to our benefit?

Mr. Callaghan: Trade has increased and so has our deficit. Whichever side hon. Members stand on in this controversy, they must recognise that it is too soon to say whether membership has benefited or worsened our position on the balance of payments. One has only to look at the figures that I have set out before me in connection with our deficit with other countries to see that it is very difficult to draw any conclusion. If we are to have an argument about this, let us at least get it on to a sensible basis.

Mr. James Lamond: Is not part of the deficit due to the unfortunate importing from Mediterranean associate members of cheap cotton yarn, which by mistake, I presume, has been labelled as a raw material? The importation of this yarn is having a devastating effect on the cotton spinning industry in the North West, so much so that some manufacturers are prophesying the death of the industry in this country in the early part of 1975.

Mr. Callaghan: The Commission is meeting today, I understand, to consider this matter, which is a serious issue for Lancashire. The position of the textile industry has taken up the time of a number of meetings of the Council of Foreign Ministers, but it would not be right to ascribe any substantial proportion of the total deficit with the EEC to that particular subject.

Mr. Marten: Assuming that a parliamentary answer is a sensible basis for this discussion, is the Foreign Secretary aware of an answer which I received last Thursday which showed that 96 per cent. of our non-oil trade deficit was attributable to the EEC?

Mr. Callaghan: I have the actual figures here and if I can find them quickly I shall give them. The argument depends upon the total figure. I have been trying to make a fair appraisal of it. I must tell the hon. Member for Banbury (Mr. Marten), who is a fair controversialist on these issues, that I would defy anybody to draw any particular deduction about what is likely to happen in terms of our membership of the EEC from what has taken place since 1st January 1973. That simply is not possible. I have pages of statistics here

and I have done my best to find a thread through them in order to try to find an answer, but there is not a clear answer.

Mr. Blaker: Is the right hon. Gentleman aware that the proposal by the Secretary of State for Trade appears to be that we should have a free trade area instead of membership of the EEC? Will the Foreign Secretary explain, or ask his right hon. Friend to explain, how that would improve our trading deficit compared with membership of the EEC?

Mr. Callaghan: I do not know that my right hon. Friend has indicated that it would improve our deficit. He has argued that it would be better for Europe as a whole if there were a free trade area rather than the EEC with the Commission operating, and that is an entirely different matter. I hesitate to draw a deduction having advised hon. Members not to do so, but the only deduction one can draw is that membership of the EEC has probably done very little to alter the balance one way or the other. We have to set against a deficit such points as the increasing activity which has taken place in this country and the fact that we are buying more food from the EEC and less from elsewhere. There are many different factors that operate both ways on this and it is simply not possible yet to assess the impact of the EEC on our trading position.

Documents (Scrutiny)

Mr. Spearing: asked the Secretary of State for Foreign and Commonwealth Affairs what representations he is making to the relevant authorities of the European Economic Community to rectify the difficulties in obtaining EEC documents referred to in paragraph 9 of the Secondary Legislation Scrutiny Committee in its Second Special Report (HC 250-ii) dated 20th August.

Mr. Hattersley: Responsibility for the supply of EEC documents to the Scrutiny Committee rests with the Government, not with the EEC authorities. I have discussed this question with the Committee in the light of its Second Special Report. As a general rule these particular documents are not published. Any which were published would be sent to Parliament in accordance with normal practice.

Mr. Spearing: Does not my hon. Friend agree that the House would be disturbed to know that these documents were not available? Is it not worth noting that nearly two years after joining the EEC we are apparently not able to influence matters because, due in certain respects to communications, we do not know what is going on? Is my hon. Friend aware that the Select Committee said that matters of trade mandates were sometimes of even greater importance than those concerning legislation? Will he now do his best to make sure that these documents are published so that our Scrutiny Committee can at least see them and send them to the House for discussion?

Mr. Hattersley: I am bound by the resolution of the House of 7th May which says that it is my duty to send to the Scrutiny Committee documents which are published. While I have an obligation to fulfil that duty, I have an equal obligation not to exceed it. As to whether the EEC should publish its trade mandates, let me remind my hon. Friend that the EEC publishes and the House examines propositions for new treaties which would have been determined by the Community as a whole. What it does not publish is its interim negotiating position, and neither does this country, and it would be ridiculous to do so.

Mr. John Davies: Will the Minister of State reassure the House by saying that the arrangements to which he has now subscribed are of a kind which will give the House better, or at least equal, access to arrangements which are entered into by the Community than may be gained by this country on its own account?

Mr. Hattersley: I would be happy to give that assurance, but the assurance given by implication by the right hon. Gentleman, the Chairman of the Scrutiny Committee, probably carries more weight than anything I might say.

Mr. Lee: Even if my hon. Friend has no direct responsibility in this matter, should he not put pressure on the body to publish its documents, or is that something far too democratic for the Common Market to consider?

Mr. Hattersley: I must conclude that my hon. Friend does not understand the documents about which we are speaking.

The documents to which the Committee specifically referred and which are the subject of the Question are the interim position papers of the nine members as they try to form a collective view on a negotiating mandate. I am sure that on reflection my hon. Friend would agree that they are not suitable for publication.

Renegotiation

Mr. Fairgrieve: asked the Secretary of State for Foreign and Commonwealth Affairs how the renegotiations of the United Kingdom's EEC terms are proceeding.

Miss Fookes: asked the Secretary of State for Foreign and Commonwealth Affairs what progress he has made in his renegotiation of Great Britain's terms of membership of the EEC.

Mr. Adley: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the progress on Great Britain's renegotiation of the terms of the Treaty of Rome.

Mr. Norman Lamont: asked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a further statement on the progress of the renegotiations with the EEC.

Mr. James Callaghan: I would refer the hon. Members to the statement made on 16th December by my right hon. Friend the Prime Minister.—[Vol. 883; c. 1121–24.]

Mr. Fairgrieve: I thank the right hon. Gentleman for his reply. As the EEC is dragged in as a red herring by hon. Members on both sides of the House on various matters to which it is not relevant, will the right hon. Gentleman confirm that, terms apart, the accession to the EEC and the negotiations completed by the Conservative Government in the early 1970s were a continuation of the genuine application for membership and negotiations begun by his right hon. Friends in the late 1960s?

Mr. Callaghan: The important words in that supplementary question were "terms apart". It is in regard to the terms that we find the complaint. It is the seven major terms which we are now renegotiating. We have always indicated our position on that matter since 1971.


But, given that it is "terms apart", I have no doubt that the rest of the hon. Gentleman's supplementary question follows, for what it is worth.

Mr. Alan Lee Williams: What proposals have been made to the Council of Ministers of the EEC about the United Kingdom's contribution to the budget, and what has been the response?

Mr. Callaghan: The contribution to the budget is one of the terms on which we thought that the previous Government did not fight the case hard enough. We have made certain proposals, and the Heads of Government at their recent meeting, recognising that Britain had a reasonable source of complaint, asked both the Council of Foreign Ministers and the Commission to try to find a formula that would enable the situation to be put right. I hope that that will proceed within the next two or three months.

Miss Fookes: Are we to expect the Government's decision about a referendum or a General Election before or after the conclusion of the negotiations?

Mr. Callaghan: I cannot yet say when the negotiations will be completed, but I hope that it will be in the early months of next year. In that case, I hope that there will be a decision from the Cabinet on the question of how the British people are to be consulted through the ballot box at the same time.

Mr. Luard: Will my right hon. Friend accept that many people on the Government benches and in the Labour Party generally welcome the great progress made by him and my right hon. Friend the Prime Minister in Paris in securing the meeting of the terms set out in our party manifesto for renegotiation? On the question of the trade deficit with the Common Market, to which some hon. Members seem to attach such importance, is it not the case that we have always had a deficit with the countries concerned and that in large part the deterioration is because we have been able over the past few months to obtain food and other raw materials from the Common Market more cheaply than from other sources?

Mr. Callaghan: I am much obliged to my hon. Friend for what he says about our part in Paris. I do not know whether we have always had a trade gap but I have the figures for 1971, 1972 and 1973, which show a substantial trade gap in 1971. It was four times as high in 1973 as it had been in 1971. Before anybody draws any conclusions from that, however, I would add that in EFTA it was about six times as high and in the Commonwealth three times as high. I have the exact figures here. I repeat that it is difficult to draw conclusions. The trouble is that our general trade deficit has been increasing throughout the world, and it is to that that the House and the country should direct their attention.

Mr. Adley: I sympathise with the right hon. Gentleman in his obvious political difficulties in his own party. Will he give an unqualified welcome to the view expressed today by his fellow Socialist, Mr. Whitlam, Prime Minister of Australia, who hopes that the British Government will stop shilly-shallying and make up their mind to stay in the Community?

Mr. Callaghan: What the Australian Prime Minister said was very different. I happened to listen to it on the one o'clock news, which is the only report I have. Mr. Whitlam said that it was for the British people to make up their minds whether we would remain in the Community. He said that it would be of no advantage to Australia if we came out. The hon. Gentleman is not particularly accurate on this matter.
Whatever my political difficulties may be, at least it will not take my party four months to decide who our leader will be.

Mr. Spearing: Does my right hon. Friend recall that in reporting on the Paris summit meeting this week my right hon. Friend the Prime Minister said that he did not think there was any need to renegotiate the terms of the Treaty of Accession? If my right hon. Friends are concerned with fundamental renegotiation, does not that indicate that they are at least considering amending Section 2 of the European Communities Act? If they will not do either, how does my right hon. Friend think it is a fundamental renegotiation?

Mr. Callaghan: The two things are different. As I first used the word "renegotiation", perhaps I may be allowed to remind the House of the context in which I used it at the Labour Party Conference, when I said that we would renegotiate the detail and reopen the principles. We have done both. That is exactly the line we are following. The European Communities Act is a separate and different matter. It can be looked at again to see whether it is necessary to alter Section 2 in any way. But we are renegotiating the details and reopening the principles.

Mr. Churchill: Will the right hon. Gentleman explain why it is one of the central points of the Government's renegotiation of the terms of entry that Britain's share of the EEC's GNP will decline during the period of the Labour Government to 14 per cent. by 1980? Or does the right hon. Gentleman share the view expressed by the Leader of the House last week that it is impossible to say what the position will be by 1980?

Mr. Callaghan: The projections, if continued, show that situation. What we are hoping, and what I trust in the interests of the country will happen, is that through the operation of the Government's economic policies we shall not fall into that sad position. But in the renegotiation we have to provide against that possibility. It is no use waiting for it to hit us and then going back to the Community and saying "We want to make a change". It is precisely on this ground that we have made the proposal, which would be applicable to any other country which found itself in a similar position.

Policy Integration

Mr. Jay: asked the Secretary of State for Foreign and Commonwealth Affairs in what respect the Government propose to integrate the United Kingdom more closely with EEC policies in January 1975.

Mr. Callaghan: Certain transitional changes occur on 1st January 1975 under the Treaty of Accession. Some tariff changes designed to improve the Community's generalised scheme of preferences also take effect on 1st January.

Mr. Jay: As my right hon. Friend is a great defender of his party's election manifestoes, is he aware that our manifesto for the last election pledged that during the process of renegotiation there would be no further moves towards integration, particularly as regards food subsidies? Is it not inconsistent with that pledge for the Government to introduce an order, which we have not yet even debated, to raise a number of food taxes and levies on 1st January 1975?

Mr. Callaghan: I am not only a defender of the manifesto; I was also in a humble way part-author of it, and I have a clear recollection of what was put in and why, and what it meant. We are fulfilling our commitments under the treaties, but we are agreeing to no new processes of integration. The two things are different. The total impact of the change in duties will be a small net reduction in duty, amounting to 01 per cent. of consumer expenditure, taking into account both food and non-food items. In the case of certain food imports it will amount to 01 per cent. of consumer expenditure on food, but the total result is a decrease in duty.

Mrs. Winifred Ewing: As the House devolved certain areas of decision making, including agriculture, fishing and education, to the Scottish Office, is not the fact that the Government countenance the increasing practice of Ministers going to negotiate and discuss such subjects in the absence of a Scottish Office representative a sign that there is a new process of integration taking place, if not sabotage of the Scottish Office?

Mr. Callaghan: I would not pretend that I could wholly represent Scotland, but I represent Wales in particular, England in general and Scotland with very great willingness. Therefore, unless we are to send four Ministers to deal with Northern Ireland, Wales, England and Scotland, or even five if we count Cornwall, I am sure that the hon. Lady will have confidence in me to represent the Celtic areas of the country.

Mrs. Ewing: rose—

Mr. Speaker: If the hon. Lady wishes to raise a point of order, will she do so at the end of Questions?

Mr. Rifkind: In determining the desirable degree of integration, will the right hon. Gentleman take into account a recent survey of 220 leading British companies which showed that only four of them believed that they had suffered more harm than good as a result of our membership of the EEC and that none of them wished Britain to leave the Community?

Mr. Callaghan: Whatever may be the views of individual companies or hon. Members, the decision will rightly be taken by the British people at the end of the day.

Mr. Spriggs: Will my right hon. Friend always take it for granted that he represents the British nation as a whole when he goes to Europe to renegotiate or whatever happens on behalf of the Foreign and Commonwealth Office? I ask him never to agree to sell the right of veto in the Common Market.

Mr. Cailaghan: We shall have a debate on these matters tomorrow. Because there is a motion on the Order Paper, and because I think that the question of sovereignty is very important, I intend to write out rather carefully what the position is and to give it to the House, if I catch your eye, Mr. Speaker. In the meantime, however, let me say that there is no question of our veto having disappeared or being likely to disappear.

Mrs. Ewing: On a point of order. May I ask for your protection, Mr. Speaker, of Scotland's constitutional position in this House? Unlike Cornwall and some other parts of the British Isles, we have a devolved set of powers to the Scottish Office. The answers which I have received yesterday and today have thrown those devolved powers, which are a constitutional fact, to the wind.

Mr. Speaker: I am willing to try to protect the hon. Lady and anybody else. But I have to administer the Standing Orders, and I do not think that what the hon. Lady has said raises any point under them.

Mr. Dalyell: On a point of order. With some seriousness, Mr. Speaker, may I ask for your protection from "phoney" points of order raised by the hon. Member for Moray and Nairn (Mrs. Ewing), who raises them repeatedly to get publicity in the Scottish Press?

Mr. Speaker: The difficulty about a "phoney" point of order is that one cannot tell whether it is phoney until it has been made.

CROWN AGENTS

The Minister of Overseas Development (Mrs. Judith Hart): With permission, I wish to make a statement about the financial position of the Crown Agents.
The House will recall that on 31st July I announced my arrangements for the restructuring of the Crown Agents. There is now a Board of Crown Agents, including up to seven part-time members with a full-time chairman. After discussion with the new chairman I agreed as an interim measure to appoint only three part-time Crown Agents in view of the immediate and pressing problems facing him. While continuing the practice of non-intervention in the activities of the Crown Agents on behalf of their overseas principals, I reserve the right to give the board directives, and indeed have already done so in relation to their own account business.
The new chairman of the Crown Agents, John Cuckney, who took up his appointment on 1st October, appointed Coopers and Lybrand as consulting accountants to review the present financial position and the future financial requirements of the Crown Agents and their subsidiary companies. Morgan Grenfell and Company Limited have since been appointed to advise on general banking matters.
The chairman, supported by the three members newly appointed to his board, has now reported to me that a decline in market value of some of the assets of the Crown Agents has led to an immediate problem of reserves and liquidity. He has made a formal request to the Government for financial assistance.
The requirement is related to the realistic writing down of assets values in the accounts, and to the need to ensure financial backing appropriate to operations involving some £600 million, excluding funds of some £200 million managed for principals.
The Government have agreed to provide £85 million, subject to parliamentary authority, which will be recoverable, by


direction, from future earnings or appreciation of assets. Standby facilities have been arranged by the Bank of England.
These arangements will demonstrate beyond all doubt that the Government stand behind the Crown Agents so that the position of all depositors is fully safeguarded; that the confidence of their overseas principals is fully maintained; and that the important services provided to the principals are continued. In the light of the history of the relationship between Government and the Crown Agents in the last four years, involving, as it has, my own initiation of inquiries in 1970, followed by the Stevenson Report to my predecessor, the right hon. Member for Bridlington (Mr. Wood), which was unpublished, and the inquiries made by a Select Committee of this House, hon. Members will clearly want to know how the circumstances necessitating this financial support have arisen. I have asked the Chairman of the Crown Agents to send me a full report on this, and I shall keep the House informed. Thereafter I shall consider whether any further action is necessary.
I have also asked to be informed in detail of outstanding longer-term commitments of the Crown Agents, including certain property investments in Australia, and of any suggestions which the new board may have for the organisation and management of its financial business in the future. I have reserved the right to direct that monies now being advanced shall be repaid from Crown Agents' resources in the course of any reconstruction of the business.
The House will, I know, appreciate that the present Chairman, John Cuckney, and the three members of his board, John Goble, John Gordon and Leslie Kirkley, have had only a very short time to assess the position and report to the Government. On taking office they were confronted with most difficult circumstances, as the House will clearly understand.
This situation, which I am sorry to report to the House, is one which we are seeking to correct. I am immensely grateful to them and would like to take this opportunity to tell the House that I have complete confidence in them. Their prime concern, as it is mine, and, I am sure, that of the House, too, will be that the Crown Agents, with their long history of

service and capability, are able to continue to provide for their overseas principals the full range of their services.

Mr. Rippon: I thank the right hon. Lady for making her statement at the earliest opportunity. May I also express a welcome for the Government's determination to maintain full confidence in the Crown Agents? As the statement says that parliamentary authority will be required for the £85 million, does the right hon. Lady expect a debate to take place so that we may have the opportunity of a fuller discussion?
Can the right hon. Lady say a little more about the terms and conditions on which the £85 million is to be provided? In particular, what is meant by the phrase "recoverable, by direction"? Its it to be a loan, or a grant, or what?
Not only do I welcome what the right hon. Lady said about a full report being made by the chairman in due course and further statements being made by herself, but I associate the Opposition with what she has said about the confidence which we should have in the new chairman. He has had great experience in public service and outside it, and we fully share the sentiments which the right hon. Lady has expressed about him.

Mrs. Hart: I am grateful to the right hon. and learned Gentleman. As to whether it is a loan or a grant, the position is that the money will be advanced to the Crown Agents but, given the reconstruction of the business that they would contemplate carrying out, there are clearly possibilities that much of it can be recoverable as their assets increase in value or as they make certain changes. Therefore, the position is a little flexible, but we hope that there will be the possibility of recovering some of the money. Nevertheless, it is not precisely a loan, but a grant which we hope will be recoverable. [HON. MEMBERS: "Oh."] Right hon. and hon. Gentlemen opposite must understand that a situation which has been in the making for at least four or five years is not so easily recoverable by a single stroke of the pen on one day. That is the arrangement we have made, and I think that the right hon. and learned Gentleman will agree that on the whole it is the best arrangement to be arrived at.
The question whether there will be a debate is a matter for the House. I shall be reporting further, and it will be necessary to consider what kind of inquiry should take place. I hope that the House will have a little patience about this because the overseas principals are involved and they, too, will need to be consulted about the form it should take. There is no doubt that the House will be more fully informed and will have a full opportunity to consider the position which has arisen.

Mr. George Cunningham: Will the Minister agree that these enormous difficulties are exactly the difficulties which many of us have been predicting for a long time in the light of the odd constitutional relationship between the Crown Agents and the Government? This is characterised by at least one hon. Member on the Opposition benches for attack as a phoney campaign. Will my right hon. Friend say roughly how much of the loss sustained on the investment side of the Crown Agents' business is attributable to the fall in the value of shares of First National Finance Corporation, one of whose present deputy chairmen was, immediately before he took up that position, Financial Director of the Crown Agents?
Finally, will my right hon. Friend say whether the Government of the day ever gave to the Crown Agents approval to go into this business of investment by comparison with their traditional buying and selling role, which I am sure continues to have the full support of everyone in the House?

Mrs. Hart: My hon. Friend and I, as I know one or two other hon. Members appreciate, have had a continuing and deep concern about the position of the Crown Agents and their involvement particularly in the money market and the property market. That may not be known to some hon. Members, but it is so, and the Select Committee on Overseas Development gave some consideration to these matters.
I cannot give my hon. Friend a precise answer as to the involvement of a particular company. I can tell him that one of the factors involved, which is not unexpected, is that the Crown Agents had considerable investments in property. The

decline in property values over the last year has intensified the problems that might concern any organisation that put a great deal of money into property, and this is a matter which is dealt with in the report which I have had from the Chairman of the Crown Agents. The further report which I shall hope to make available to the House, at least in summary, will show that clearly.
As to the member of the staff of the Crown Agents to whom my hon. Friend referred, that is a matter which is perhaps better not discussed in the House at the moment, as my hon. Friend will appreciate. If there is an inquiry, whatever form it takes, it might well be a proper subject for the inquiry.

Mr. Pardoe: Is the right hon. Lady aware that the House will be somewhat mystified, in that the Government appeal to have agreed to provide £85 million but have only now asked for a full report into the circumstances which make this financial support necessary? Does not the Minister think that it might have been better to have asked for the full report first and to have provided the finance thereafter?
Although many will welcome the fact that the Government stand behind the Crown Agents, is the right hon. Lady aware that if this kind of nonsense goes on the world will want to know who stands behind the Government?

Mrs. Hart: I am afraid that the hon. Gentleman is falling rather short of his own standards here. He might be well advised to do a little research into the reports of the proceedings of the House in HANSARD over the last four years. It is all there.
I was the first to express serious concern early in 1970 when I was Minister of Overseas Development. That led to my asking my Department for a paper on the constitutional relationship between the Crown Agents and the Government, which was somewhat obscure. That led my predecessor the right hon. Member for Bridlington (Mr. Wood) to ask for the Stevenson Inquiry which, reported, but that report, despite pressure from the then Opposition, was not published. That led to the Select Committee's inquiries which, as soon as I came back into office in March, led to my initiating changes in


the structure which in turn led to the revelation of what has been going on. The hon. Member for Cornwall, North (Mr. Pardoe) would do better to do some research.

Sir G. de Freitas: Will my right hon. Friend recognise that many of us who have followed for some time the affairs of the Select Committee and the Crown Agents were highly critical in the past? However that may be, there are many of us now who give full support to the present Crown Agents and their chairman?

Mrs. Hart: I am grateful to my right hon. Friend. I must be absolutely frank with the House. This is an unfortunate report to have to make to the House. It follows a series of events and a history of some years. I think that we are now doing the right thing, and I am certain that the Government's duty is to give full backing to the Crown Agents because of their importance and value and because the name of Britain is involved.

Sir Bernard Braine: Does the right hon. Lady accept that there are some Opposition Members—I was, after all, Chairman of the Select Committee that inquired into this matter—who were anxious about the financial activities of the Crown Agents precisely because they cut across a superb, unique record of service to the Crown Agents' principals in the Commonwealth and to the British economy? I very much welcome, although with some sadness, the statement which the right hon. Lady has made today. May I ask whether at any stage any of the principals have been critical of the conduct of the Crown Agents in the carrying out of their normal business?

Mrs. Hart: The answer to the last part of the question is "No". What emerges is that the matter is not as simple as the right hon. Gentleman might suppose. The answer is "No". The overseas principals still have every confidence in the Crown Agents, and I should like to reinforce what the right hon. Gentleman said. What we are talking about today is the consequence of operations in the money market and the property market which left undisturbed the complete efficiency and good faith of the operations

of the Crown Agents in procurement and in service, which are the real bases of their operations.

EUROPEAN ECONOMIC COMMUNITY (BUSINESS)

The Minister of State for Foreign and Commonwealth Affairs (Mr. Roy Hattersley): I will, with your permission, Mr. Speaker, and that of the House, make a statement about business to be taken in the Council of Ministers of the European Community during January. The monthly forecast for January was deposited yesterday. The House will understand that because of the recess my statement has had to be made earlier than usual in the month.
At present five meetings of the Council of Ministers are proposed for January. Agriculture Ministers will meet on 13th–14th and 20th–22nd, Foreign Ministers on 20th-21st, Finance Ministers on 27th, and Development Ministers on a date yet to be set. It may also be necessary for Ministers to discuss the latest position in the negotiations with the developing sugar-producing countries.
Agriculture Ministers will resume their discussion of Community farm prices for 1975–76 and of proposals for the beef régime.
The Foreign Affairs Council will be the first since the recent Heads of Government meeting in Paris about which my right honourable Friend the Prime Minister made a statement last Monday, 16th December. It is likely that the Foreign Ministers will wish to review the outcome of that meeting, although the full agenda for that Council is not yet available.
The agenda for Finance Ministers is also not known, although they are likely to have their usual monthly discussions on the economic situation in the Community.
Development Ministers will consider the release of a further Community contribution to the United Nations emergency measures, a Commission proposal on guidelines for a new aid framework for the Community, and food aid policy.
There is also likely to be a ministerial meeting between the EEC and the African, Caribbean and Pacific countries


to conclude the negotiations for a new Convention of Association.

Mr. Rippon: I thank the Minister for that essentially business statement. Since it was largely concerned with business, could he perhaps give a little more information about the possible meeting in relation to the developing sugar-producing countries and the likelihood of the ministerial meeting concluding the negotiations for a new Convention of Association? Is there any reason for doubt about meetings of that kind being held in January? If so, for how long would he expect them to be postponed?

Mr. Hattersley: I have no doubt. The negotiations are now taking place between the sugar producers and those countries which hope to import their sugar. I hope for progress, although each party is at present taking up negotiating positions. The meetings of the Council very much depend on the outcome of the immediate negotiations. The meeting between the EEC Ministers and the ACP countries depends on the timetable by which the parties will have achieved their joint negotiating positions. The ACP countries are meeting in Dakar today and, I think, tomorrow, and the availability of the EEC Ministers is absolute. We would have met the ACP representatives this week had they wanted us to do so. We are at their disposal when they arrive at a common position.

Mr. Marten: Could the Minister ask his right hon. Friend the Foreign Secretary to take up the point of political union which was raised during the summit conference, where it was apparently agreed that it would take a year to decide what was meant? As a referendum is to be held in less than a year I imagine, could not a decision on this matter be expedited? The EEC has been in existence for 17 years. It is one of the aims of the EEC to achieve political union—

Mr. Speaker: Order. A debate on this matter will be held tomorrow. I hope that Questions today will be confined strictly to EEC business for the next month or so.

Mr. Spriggs: May I draw the attention of my right hon. Friend to the need for future business arrangements within the Community regarding matters affecting

the North-West textile industry and the danger of the importation of textiles under disguise from foreign countries? Will the Minister see if he can put this subject on the agenda so that the danger of mass unemployment in the North-West textile industry can be overcome?

Mr. Hattersley: I am happy to tell my hon. Friend that the item is already on the agenda. The EEC, including the Commission, which negotiates with third countries on behalf of each member State, is conscious of the problem to which my hon. Friend refers. Indeed, the Commission is meeting today to consider what emergency measures are necessary to provide the right sort of protection for the textile industry. I very much hope that a statement about the Commission's decision will be made before the House rises.

Mr. Scott-Hopkins: Will the Ministers be meeting to consider the implementation of the regional policy decisions? Will the Energy Ministers be meeting in Council before the end of January?

Mr. Hattersley: I think it is unlikely that the Energy Ministers will be meeting during the month. If the meeting takes place at all, it will occur towards the end of the month. The Energy Ministers had a very successful meeting yesterday concerning which I am sure all hon. Members wish to offer congratulations to my right hon. Friend the Secretary of State for Energy.
As regards the implementation of the regional policy, the summit meeting made a major breakthrough on regional policy. Indeed it established something which appeared impossible before. I am sure that the implementation of that decision will be discussed by the Foreign Ministers in January.

Mr. D. E. Thomas: Could the Minister give further information about the time scale of the new EEC beef regime and how many meetings are scheduled on this subject during the course of the first three months of 1975? Will he say when he expects an agreement to be reached on the new beef régime?

Mr. Hattersley: The Agriculture Ministers are already scheduled to meet twice during January. They are doing that with the intention, pioneered by my right


hon. Friend, to obtain a new agriculture regime in general and a beef regime in particular, during the early weeks of 1975.
The new price structure for last year was somewhat delayed, with detrimental consequences to the industry. It is the intention of my right hon. Friend to ensure the operation of the new regime and price structure during the early weeks of 1975.

Mr. Russell Johnston: Referring to the question asked by the hon. Member for Derbyshire, West (Mr. Scott-Hopkins), surely it is not the Foreign Ministers who will be primarily concerned with the operation of the regional fund. Is it not strange that, in view of the fact that the fund is being established on 1st January, the Industry Ministers are not meeting during that month. When does the Minister expect that they will meet?

Mr. Hattersley: The natural process for for the implementation of this decision is for it to filter down from the heads of Government to the senior Council of the EEC—the Council of Foreign Ministers. The decisions of the Council of Ministers will be implemented in more detail by their industry colleagues.
I have had to give the House a somewhat interim account of the EEC business because of the early date of this month's statement. The Council will want to take every step to ensure that the timetable laid down for the Regional Fund by the Prime Minister is adhered to. That will have to happen at the meeting of Ministers.

Mr. John Davies: With the passage through the Congress of the United States Trade Bill, nothing is perhaps more important to the future of the world economy than the expediting of trade negotiations on a world basis within the GATT. Can the Minister please say to what degree this matter will be dealt with by the Foreign Ministers during the course of the next month in the Community, because the EEC holds a large part of the key to the future of these negotiations?

Mr. Haltersley: The Community has been ready to make progress in this area for some time. The passage of the Bill referred to by the right hon. Gentleman has been awaited for some time.

Now that it has been passed, I have no doubt the appropriate commissioner will be reporting it initially to the Foreign Ministers in January. Whether he will be able to report that the Community has arrived at a satisfactory arrangement with the United States depends on the outcome of his discussions with the other parties.

Mr. Cryer: Could the Minister give us some idea when the commissioners will make a decision concerning the reduction of tariffs on steel imported from developing countries? In the current year their decision-making process was so lethargic that it involved retrospective legislation in this country. I am sure the Minister will agree that retrospective legislation is undesirable but that the lethargy is fairly typical of the EEC bureaucracy.

Mr. Hattersley: I think my hon. Friend misunderstands the structure of the EEC. Normally, when a long time is taken for the confirmation of decisions it is not because the Commission has behaved in a dilatory way but because the Council of Ministers has wished to meet several times to decide whether the Commission's proposals are right or not. I am sure that after reflection on the matter to which he refers, my hon. Friend would prefer the constant democratic scrutiny of the Council of Ministers rather than the speedy rubber-stamping of Commission proposals.

Sir Brandon Rhys Williams: Can the Minister say what business will be considered by the Finance Ministers at the January meeting and whether it is intended to react to the Kissinger Plan for recycling petrodollars?

Mr. Hattersley: I regret I can tell the hon. Gentleman no more about the Finance Ministers than what I said in my initial statement, other than the fact that they have their usual examination of general economic matters affecting member States. The inability to give precise information about the agenda is forced on me by the wish of the House, which I understand, appreciate and support, to have a statement every month. Therefore, in December there is a need to make a statement before the agendas are completed.

BILL PRESENTED

REPRESENTATION OF THE PEOPLE (PROXY VOTING)

Sir John Langford-Holt, supported by Mr. David Crouch and Mr. David Price, presented a Bill to permit electors who are absent on previously arranged holidays at the time of Parliamentary election to vote by proxy; and for related purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 9th May and to be printed. [Bill 54.]

REPRESENTATION OF THE PEOPLE (AMENDMENT)

4.0 p.m.

Mrs. Millie Miller: I beg to move,
That leave be given to bring in a Bill to provide for the conduct of proceedings following the counting of votes at a general election in multi-constituency boroughs so as to ensure that each successful candidate shall be entitled to speak.
I ask for leave on the ground that I myself was denied a pleasure, an honour and a privilege which I suspect that every other hon. Member has considered his birthright on winning an election. In order to explain the significance of this matter, it will be as well for me to tell the House of the events of the night of 10th October in the borough of Redbridge, which is just such a multi-constituency borough.
On this occasion the returning officer, at the conclusion of the counting of the votes in two of the constituencies, which took place in one small hall, after announcing the result, immediately withdrew from the hall followed by his retinue without any explanation as to his leaving or whether he intended to return.
In the absence of any indication of this matter I, as the successful candidate, not knowing what else to do, decided to use my own machinery, which was to mount a step at the side of the platform in order to thank my supporters and helpers and also the workers in the administration who had been involved in the vote counting.
At the end of the proceedings, in common with Labour Party practice throughout the country, we joined in singing "The Red Flag"—a matter which will come as no surprise to my right hon. and hon. Friends. When we had concluded, we joined in raising our arms, as I suspect many hon. Members have done, to give three hearty cheers.
Suddenly the door of the hall opened and the returning officer came back. He invited candidates to take their places on the platform. He announced that it had been arranged—but he did not say by whom or with whom it had been arranged—that the candidate with the highest number of votes and the candidate with the lowest number of votes would be


the only ones allowed to join in the traditional vote of thanks to the returning officer.
I am sure that the House will understand that it was not just my suspicious mind which made me wonder how it came about that a Conservative speaker and one who, had he been present, would have represented something called the Movement to Improve Prosperity in Britain were to be the only people to speak on this occasion, although there were two successful Labour candidates in the same borough.
Of course, I did not question the ruling of the returning officer. But, as hon. Members will understand, this raises the question which perhaps all hon. Members might ask themselves, namely, whether they should have an entitlement to speak at the conclusion of a successful election campaign.
Perhaps it would have been of no great consequence if it had not been followed by an occurrence of some consequence. Certainly it was of consequence to me. The gentleman on whom the honour fell to move the formal vote of thanks, after a few brief words of formal thanks to the officials, said, "This is an ill omen for Britain. Something very ominous has happened in Ilford, North tonight". Looking meaningfully at me, he went on, "A Communist salute has been given in this hall".
At that, the helpers of the Labour Party erupted in disorder. That was not altogether surprising since, during the whole of two election campaigns we had been regaled with descriptions of ourselves of various kinds including such delectable phrases as the fact that we were "Red Nazis". Hon. Members can imagine that a further Communist smear on this occasion provoked a somewhat strong reaction on this account.
I prefer not to indulge in personal attacks on other hon. Members. Nevertheless, I feel that this is a matter which I have the right to bring before the House in order to clarify my position. It may be known to a few of my hon. Friends that I have been an elected representative in the London area since 1945. Never during that time has it been suggested that I had sympathies with or predilections to Communism. To deny it, which

was the only redress offered me by the hon. Member concerned, would have been in the same category as an answer to the question when I stopped beating my husband or when a certain right hon. Member stopped saving fuel by cleaning his teeth in the dark.
This is not a trivial matter, and I am not prepared to allow it, in the words of The Times diarist on a similar issue in the same constituency
… to pass into Right Wing Tory mythology.
What I have said outlines clearly the point that I am trying to make and the Bill which I seek to promote. I say to this House that every successful candidate in every constituency—not in a selected part of any borough—should have the right to move a vote of thanks to his speakers, to his supporters and to his electorate. It is for that reason that I ask leave of the House to present my Bill.

Mr. Patrick Cormack: (Staffordshire, South-West) rose—

Mr. Speaker: Does the hon. Gentleman wish to oppose the motion?

4.9 p.m.

Mr. Cormack: I do, Sir, but I shall not detain the House very long.
This is a preposterous waste of the time of this House. It is a preposterous abuse of the Ten-Minute Rule. If it is allowed, we shall have Bills to regulate the order in mayors' processions and matters like that. It is totally absurd. It does not deserve the serious consideration of this House.
None of us will dispute that successful candidates should have the right to speak at elections, but this is not the sort of thing with which an hon. Member should waste our time, especially when we are about to debate some of the most serious issues that the country has ever faced. I shall oppose the motion.

Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and nomination of Select Committees at commencement of Public Business):—

The House proceeded to a Division—

Mrs. MAUREEN COLQUHOUN and Mrs. ANN TAYLOR were appointed Tellers for the Ayes, but no Member being willing


to act as Teller for the Noes, Mr. SPEAKER declared that the Ayes had it.

Ordered,
That leave be given to bring in a Bill to provide for the conduct of proceedings following the counting of votes at a general election in multi-hyphen constituency boroughs so as to ensure that each successful candidate shall be entitled to speak.

Mr. Speaker: Who will prepare and bring in the Bill?

Orders of the Day — SUPPLY

[5TH ALLOTTED DAY],—considered.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dormand.]

Orders of the Day — THE ECONOMY

4.11 p.m.

Mr. Edward Heath: The events of the past few days have made it essential for the House to debate the economic situation before rising for the Christmas Recess.
The extreme gravity of the crisis now facing this country has in the last fortnight become appallingly clear, and every indicator points to the fact that it will become worse.
This situation is disguised for many outside the House by massive increases in earnings over these past nine months. The figures published today show that since March basic wage rates have gone up by 21·3 points and the RPI cost of living index has gone up by 12·3 points. Therefore, as a result, wage rates have increased one and three-quarter times the increase in prices in this country.
For those whom the Prime Minister commonly calls the big battalions, who have been able to get these substantial increases, the very nature of the crisis has been disguised. It has also been disguised externally by the massive borrowings made by the Chancellor of the Exchequer from the oil producers.
Just over a year ago, in November, the Prime Minister said that this country was in pawn to the oil sheikhs. That was only in the context of our being dependent upon the oil producers for our total oil supplies. Now, of course, we are dependent on them for the massive loans that they have already given us and for continuing loans to cover the vast deficits that the Chancellor of the Exchequer foresees both internally with Budget deficit financing and externally on the balance of payments. Therefore, to use the Prime Minister's phrase, we are now in pawn to the oil producers both for the oil that we need until North


Sea oil comes forward and for our existing loans and massive future loans.
I say to the Prime Minister, in the absence of the Foreign Secretary, that he must now accept that his foreign policy in the Middle East will have to be acceptable to all those there. If there were to be a further conflict in the Middle East by the spring of next year, which many fear, he would then have to hold a position which was acceptable to both sides, which he failed to do when he was in Opposition, and recognise not only that the oil supplies to this country would be in danger but that the continuation of future loans from the oil producers in those circumstances would be at risk.
The Government are not taking the measures necessary to deal with the short-term crisis which we now face, nor are they tackling the deep underlying problems of the British economy which have faced every Government—the lack of future investment, which is now particularly critical under this Government; the lack of capital behind our working population in which we compare so badly with other industrial countries; the wasteful use of resources, especially of manpower with overmanning, to which my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) drew attention last weekend, and the industrial disturbances and restrictive practices which exist in our industry. Indeed, the Government's present policies are immensely damaging in many ways to our industrial life and economic prospects.
The Chancellor's taxation policies and the Government's policies for public ownership, intervention and control and the so-called continuing renegotiation in Europe have created uncertainty and destroyed confidence. It will now require an extraordinary effort by the British people to restore confidence in our economy as well as in the stability of our society.
I believe that the country would not only have failed to understand but would wholeheartedly have condemned the House of Commons if we had risen for the Christmas Recess without discussing this grave situation and giving the Government the opportunity of explaining their failure to act in time in the face of the calamity threatening us and giving the Opposition an opportunity of placing

the facts before the country again and of putting forward constructive proposals.
The Government failed to offer any statement or debate. The Opposition are giving Parliament the opportunity to discuss the matter. I believe that we must seize the opportunity to bring home as vividly as we can to the people of this country the gravity of the situation and what is required of the nation today.
We must tell the nation the plain truth about the situation. What is required today is a national response from the nation as a whole. We cannot expect that from the British people unless they are told the plain, hard truth about the situation.
The Government have always been behind hand with the truth on inflation, on increasing unemployment, on the breakdown in industry and on the real need for conservation measures on oil, which we have not yet had. These are but a few of the examples where the country is not being called upon to face the hard facts of life today.
Let the Chancellor of the Exchequer, who is to follow me, face the reality today, and let this House make a bold attempt to give the nation the leadership that it requires.
We have had nearly 100 days since the Chancellor, on 23rd September, told the nation that inflation was
currently running at 8·4 per cent.
At about the same time, 20th September, the Secretary of State for Prices and Consumer Protection made the comment:
All one can say about inflation is that it is beginning to move downwards.
But, as usual, the definitive mis-statement came from the Prime Minister the day before polling when he said:
Unemployment … is beginning to fall; the balance of payments shows a substantial improvement; the pace of inflation and price rises is moderating … but now we are being inundated with gloom and doom from the Conservative leadership.
Time after time the Prime Minister and the Chancellor of the Exchequer told the voters that inflation was getting better, slowing down, being reduced, moving downwards, and anybody who disagreed was, in the right hon. Gentleman's cliché of the day, spreading gloom and doom. But one cannot assassinate the truth with a cliché. Now the truth is there for all to see, and the country recognises it.
The Chancellor of the Exchequer claimed that 8·4 cer cent. was the rate of inflation at the General Election. Will he tell us what the figure is today? Will he do it on the same basis as he calculated the 8·4 per cent? Will he tell the House?
I will tell the House. On the Chancellor's basis the rate of inflation today is 21·1 per cent. That is based on the past three months, which was the period taken by the Chancellor in misleading the country by saying that the rate was 8·4 per cent. and coming down. But we have still to feel the full impact of the November Budget with higher petrol prices, higher postal charges, higher rail fares, higher gas and electricity charges, the further increase in petrol charges, which has just been sanctioned, and the result of the changes in the Price Code.
All of that still has to come on the rate which I have just cited to the Chancellor. If he prefers to stick to the rate over a year, it is 18·2 per cent. That surely is high enough as a rate of inflation, but the indications from these last three months of what is to come are that this rate is bound to increase. These figures are the highest since records were first published in 1947.
Let us turn to the wages front. There have been numerous breaches of the TUC's pay guidelines. One can take whichever source one likes. There was an article in the Financial Times listing all those who have obviously and openly broken the social contract. So far, about 350,000 people have had massive wage increases, none of them for special circumstances or for special reasons. They were a plain breach of the social contract, and no longer does the Secretary of State for Employment pretend to have a policy about pay.
I have given a brief summary of the figures which have emerged, and they demonstrate all too clearly what is happening on the pay front. The truth is that today this country stands on the brink of hyperinflation, and that is not the only danger facing us. However great those consequences may be internally, that is not the only danger.
There is a danger to the balance of payments. I have already mentioned the Prime Minister's statement that it was improving, yet now we see that the non-oil deficit is getting worse, not better.

In November it was £227 million, twice as bad as in October. What we are seeing is that in money value exports have stabilised, which, with increases in other imports, must indicate that, volume-wise, we are decreasing, and this is the dangerous threat that we have to acknowledge in our exports.
The visible trade deficit for the same month was £534 million, the worst ever. The current balance, including invisible earnings which are so valuable to us, was £404 million in the same month, again the worst ever. It is also a matter of fact that since the election sterling has fallen dramatically to its lowest point ever.
The situation is vividly illustrated by the figures given by the National Institute of Economic and Social Research in its last report. It forecast that from the third quarter of 1974 to the end of 1975 there would be a depreciation of sterling by 4 per cent. That was the basis on which the National Institute made its calculation. The report, which was published a fortnight ago, referred to the end of the third quarter of 1974, but already there has been a depreciation of sterling of more than 4 per cent. on what it was allowing for for the whole of the 14 months to go to the end of 1975. No one can say this with any satisfaction, but it is a measure of the problem that faces us as a nation.
The next dangerous thing about the situation is that it has commonly been accepted by Governments and economists in the past that if prices get out of level a change in parity or the exchange rate is one means of dealing with it, and might be preferable to other methods. This means that we get increases in prices, which cuts down imports, but later we get an opportunity for exports with lower prices to more than match them, but we recognise that it takes nearly two years before exports can do that.
What is happening now is that with the rate of depreciation of sterling we are never able to get the advantage of the improvement of prices in exports because import prices are reflected in our prices, and the wage increases which follow deprive us of the advantage of getting a depreciation in the currency or a change in the parity rate. This is the great danger facing us, as the Prime Minister understands full well. The technical phrase is


the J curve. We are not getting an opportunity to go up the curve. We are getting the downward part, but there is never sufficient time to take advantage of the upward turn of the curve.
What are particularly worrying, and it has come as a surprise to many of us, are the reports from many industrialists that we have lost our competitive edge in the markets of the world. If we have done that our falling export performance is understandable, but it is an intensely dangerous situation. We can look at the problem of world trade as a whole and see forecasts for 1975 but it is unlikely that we can comfort ourselves by saying that Federal Germany and two other members of the Community are reflating. The reflation will be of no advantage to us if we have lost our competitive edge in the industrial markets and markets for investment, equipment and manufactures.

Mr. Norman Atkinson: The right hon. Gentleman is putting a powerful case. Does he recollect that on 3rd October 1973, when his Government were introducing phase 3 of the prices and incomes policy, his Front Bench speakers were arguing the exact opposite of what he is now saying? If he looks at the record he will see that to be so.

Mr. Heath: I cannot agree with the hon. Gentleman. The phase 3 figures were introduced before there had been any increase in oil prices. I do not accept the hon. Gentleman's statement that a different case was being put on that occasion. The case I am putting relates to the danger to our exports. We have to face the situation realistically if we are to find a solution to the problem, and, as the hon. Gentleman said, the case I am putting is powerful.
We can see the squeeze on companies, despite what the right hon. Gentleman has done, the industrial disputes and the loss of our competitive position. British industry is being squeezed by taxation, by difficulties in borrowing, and by a pay policy which is, in effect, a free-for-all. All this is driving more and more of British industry into bankruptcy, and, therefore, into the Department of Industry to get support from the Government.
One has to say to the Chancellor of the Exchequer that there may be some

hon. Gentlemen below the Gangway who want this to happen, but I am prepared to give credit to the many on the Government Front Bench who do not want it to happen. However, it is happening. For how long will the Chancellor of the Exchequer be able to find from public funds the vast sums that are needed to maintain the position of British industry and those who are affected by the position in the stock market and elsewhere? We have had a further statement this afternoon—a very important one—involving large sums of money. The Chancellor of the Exchequer has to face the impact on the Stock Exchange, the effect on investment and the issue of how he will find the necessary funds to deal with this problem.
I deal next with the industrial situation. The number of days lost through strikes between April and October was up by nearly 50 per cent. compared with the same period last year. So much for the Prime Minister's period of "peace and quiet". No one can take any joy from industrial disputes, but the Government surely ought to have the honesty to recognise that these disputes are occurring under their administration. The figures are up by 50 per cent., and the criticisms made by the Prime Minister and his colleagues of the previous Government ought to be withdrawn.
If one looks at the general forecast of industrial trends from the CB1 and from industry, one realises that a more sombre picture is being painted than at any time since July 1966. In two months since the election, when we were told that everything was to get better, we have seen the worst-ever rate of inflation, with forecasts of still worst to come. This is inevitable from the figures published today on the movement of wage rates and earnings. Since the election we have seen the worst-ever balance of trade deficit, the worst-ever current account deficit, the worst-ever rate for sterling and a collapse of the stock market. The Chancellor of the Exchequer said earlier this year—perhaps in a rather unguarded moment—that the Stock Exchange "is a very accurate barometer" of confidence in the Government's ability to govern. It is pretty well at the bottom of the barometer now, though it may go lower, and it shows no confidence in the Government's ability to govern.
The stock market is at its lowest level for 21 years, and in real terms at its lowest level since well before the Second World War.

Mr. Atkinson: It is irrelevant.

Mr. Heath: Is it irrelevant to all those trade unions which have pension funds invested in equity stock? Is it irrelevant to all those with small savings who put their money into insurance funds? Is it irrelevant to those who will retire and are looking to that as their source of income? I have never before heard such a disgraceful remark from an hon. Member. It is indicative of the harm that is being done to this country and to its people. It embodies the attitude that the Stock Exchange is only the concern of a few wealthy people and what does it matter if it brings in its train the collapse of British industry—or is the hon. Member for Tottenham (Mr. Atkinson) one of those who wish to see the State take over every item of British industry?

Mr. Atkinson: I meant that the Stock Exchange was irrelevant in terms of yield. What people are getting today is the equivalent of fixed-interest loan yields, and the Stock Exchange has shown an inability to provide fresh issues. Therefore, fixed interest loans are irrelevant.

Mr. Heath: I advise the hon. Gentleman to discuss the matter with those who manage his own trade union's funds and ask them whether they are happy with the present situation of the Stock Exchange.
The Government are presiding over, and indeed hastening, the decay, destruction and near-collapse of normal mechanisms of production, finance and savings. The momentum of corporate expansion is dwindling to almost nothing because of the shortage of internal and external finance. Financial institutions are finding fewer creditworthy clients to lend to and cannot offer the public security of capital or income. The real rate of return is still negative. Each of these problems compounds the others and leads to further complications and distortions. These are the symptoms and effects of inflation at a rate of 20 per cent.
There are many forces which threaten to make the current wage inflation worse.

Stage 3 has been abandoned. We shall see in the new year greater pressures on negotiators to press for higher wages, interim agreements and topping-up arrangements of one kind and another—all of which will break the 12-month rule. They will press for new threshold arrangements to ensure protection against price increases. Many groups have already obtained settlements to compensate them for the past and they now want settlements to anticipate the future. This has been pointed out in the introduction to the National Institute's report.

The Secretary of State for Employment (Mr. Michael Foot): I hope that the right hon. Gentleman will not give currency to that part of the National Institute's report, because it is quite untrue that any anticipatory arrangement would be within the guidelines, and it is untrue that any settlements are being made on that basis. It is a misleading statement made in the National Institute's report, and I am sure the right hon. Gentleman will not wish to give it currency. If he were to do so, it would encourage people to try to make settlements on that basis.

Mr. Heath: I appreciate the right hon. Gentleman's point, and I would in no way wish to emulate his conduct when he was in Opposition.

Mr. Foot: I said that the statement made by the National Institute was wrong in both particulars. That report suggested that anticipatory arrangements would be within the guidelines. That is untrue. I also said that it was untrue that settlements were being made on that basis in any general sense whatever. Now that the right hon. Gentleman has been given the facts, I hope that he will withdraw that statement and give no further currency to it.

Mr. Heath: I repeat that I shall deal with this statement in detail because I do not propose to follow the course taken by the right hon. Gentleman in Opposition; namely, of inciting every major wage claim he could find.
To deal in a little more detail with the right hon. Gentleman's point, what is stated in the Institute's report is not within the guidelines of the social contract. There can be no other explanation for very large wage increases, which


cannot be justified under the social contract, other than that they are anticipating the future. This is well known to anybody who has been concerned with trade union negotiations.

Mr. Foot: rose—

Mr. Heath: I hope that the right hon. Gentleman will allow me to finish the point. I do not know how any of these very large awards can be justified except on the basis that people are trying either to get in before a wage freeze or to anticipate a rise in prices. The National Institute correctly points out that to take such a course is to compound inflation. It cannot do other than make the situation worse. This is where the Secretary of State for Employment is so completely ineffective in not trying to restrain such awards or finding some way of dealing with them, because it is compounding inflation.

Mr. Foot: I repeat to the right hon. Gentleman that that statement by the National Institute is false and misleading. I trust that the right hon. Gentleman, having had the facts drawn to his attention, will now refute the statement and not continue to give it credence. It is quite untrue that settlements are generally being made on that basis. The right hon. Gentleman should withdraw what he said.

Mr. Heath: The Secretary of State for employment will have to deal with the facts of the case and explain how these massive awards can be justified. They are leading to increased inflation.
I hope that in their reply tonight the Government will say what precisely they intend to do about the wage position. Will wages continue at the rates I have cited today in quoting from the Department of Employment's figures, will this situation be allowed to continue, and what are the Government prepared to do about it?
If there were no such cover as the social contract and this House or the country were to see an announcement of these figures at any normal time, we would say "These are completely incomprehensible and unjustifiable". However, the Government are seeking to give an air of respectability to the whole situation. That is the dangerous

aspect of the social contract. The Secretary of State for Employment has responsibility in this matter. He has to say that wage demands will deal with the real position of the economy, or he has to accept that he has an ineffective policy, or that he has at the moment no policy at all. There is no time to be lost if the Government are to have any chance at all of mastering inflation either through a voluntary policy of some kind or through an alternative statutory policy.
A great deal has been said recently about conciliation and arbitration. Those of us who have had experience in the Department of Employment, or the Ministry of Labour as it was, appreciate the importance of conciliation and arbitration. We also know the weaknesses. There are many aspects of industrial life in which that aspect can be successful. Let me quote what the Chairman of the Conciliation and Arbitration Service said the other day:
You must not think that the CAS is responsible for the terms of settlements; we do not mind if it is £30 or £40 or anything else. Our first responsibility is to try to secure a settlement".
The situation on arbitration and conciliation at present could not have been stated more clearly. I am not talking about disputes over conditions in factories, because obviously there are many cases which can be dealt with speedily by conciliation, but I am dealing with arbitration. That statement certainly sums up the situation. The whole philosophy behind the CAS is to secure industrial peace, but, obviously, it is prepared to do so at any price.
How can this situation be reconciled with an effective anti-inflation policy of any kind or with an economy that is balanced and able to hold its own in the competitive world outside? That philosophy encourages those in militant groups to make extreme demands of all kinds. We have witnessed this so often in negotiations. A wage demand is made and the employer says that it cannot be met. The negotiators then say "We shall take the matter away with us and consider it." The employer eventually makes another offer, and stage by stage the matter moves on and no response comes from the other side. Finally, the parties go to arbitration, and usually there is a fifty-fifty difference between them. The


renegotiations then begin, and the final award is made approving the arbitration rinding. This is the reason why arbitration without principles cannot be an effective means of dealing with inflation in this country either in the present critical situation or in a normal situation. Without proper guidelines we see the embodiment of peace at any price.
I recognise that some members of the Labour Front Bench appreciate what is going on. The right hon. Gentleman the Foreign Secretary spoke honestly about his worries in Brussels recently, speaking from his experience as an ex-Chancellor of the Exchequer. He knows about the policies that led to devaluation and the great loss to sterling on the way. There are some others who see in the crisis an opportunity to introduce a Socialist State. It was the Secretary of State for Industry who told the Labour Party conference in 1973 that the crisis should be
… the occasion for fundamental change and not the excuse for postponing it.
Of course, many fundamental changes may be necessary in this country in industry and the economy, but fundamental change to a Socialist State siege economy is not the fundamental change that the country wants.
There are reports of differences in the Cabinet about policy and about changes in pay policy. Perhaps the Chancellor of the Exchequer will tell us what his attitude is. Perhaps the Secretary of State for Employment is willing to tell us what his proposals are. The Chancellor apparently wishes to ask the Prime Minister what the policy is first. It all rather implies that we are approaching the Bank holiday, when the Prime Minister will again take over supreme direction of the economy—always on a Bank holiday, and always followed by devaluation.
The Chancellor was asked during the February election whether he would give a promise not to introduce a statutory incomes policy. He replied:
I would not give such a pledge because I am an honest man, and I know how circumstances can change cases.
It was an honourable reply. At the October General Election the Chancellor, the Prime Minister and all their colleagues bound themselves in no circum-

stances to have an incomes policy which required statutory backing.
The Chancellor of the Exchequer (Mr. Denis Healey): So did the right hon. Gentleman.

Mr. Heath: If the right hon. Gentleman did not bother to read the Conservative Party manifesto, one can understand his ignorance.

Mr. Healey: What about 1970?

Mr. Heath: We are talking about the last election. We have learned from experience, but the Chancellor and his colleagues chose to hide their heads in the sand and to say in October that there were no circumstances in which this could arise. Are we, the country and the world to assume that this inflationary situation, approaching hyperinflation, is to continue at an ever-increasing rate, that the sort of announcement about wage increases we have heard today is to go on, and that the Government will take no action of any kind? Is that the situation? If it is, the Government are heading for catastrophe.
The truth is that the country needs a new policy to be thrashed out on the whole question of the economy and, in particular, on prices and wages. There are those who say that the Government must introduce a freeze. I hope that those who demand it at the moment will recognise the immense difficulties of going for a straight freeze. I hope that, above all, they will recognise that any action of that kind requires, later on, after a comparatively short period—in our case, five months—embarking on the process of getting out of the freeze, which is one of the major problems facing any economy. It can be done with considerable flexibility, but the difficulties are great.
I understand the attitude of the Secretary of State for Employment in these matters, because he, not being prepared to take any open line about what ought to happen to wages, or the economy as a whole, or to incomes, is just prepared really to wash his hands of the whole thing because he is so terrified that if he were to take a particular line he would be proved to be wrong, or the regulations would not be observed, or other difficulties would arise. But if he goes on taking that point of view with


the economy as it is, he can only expect the sort of figures we have had today and the disaster which follows from them.
But it is more than just a question of working out these policies. We have to thrash out a programme of measures which could be agreed by all parties in this House as far as possible. I say to the Prime Minister that we Conservatives are fully prepared to co-operate where action is taken to save the mixed economy and prosperity of this country and the freedom of its peoples, which depends upon that economy. We are prepared to co-operate in a genuine attempt to save the mixed economy in this country, and there are items which should be on the agenda for such a programme.
We have to agree to cut the borrowing requirement which the Chancellor of the Exchequer has embarked upon. The Supplementary Estimate on 9th December was for £1,538 million. Is it not a mark of the times that outside this House, in the country, it has passed almost without notice? There were times when Supplementary Estimates of £80 million or £90 million were a major cause of dissension in the whole of the Press, amongst economists and elsewhere.
A massive 68 per cent. of the Supplementary Estimate reflected the rate support grant for local authority expenditure, and £550 million was the increase in real terms expenditure, quite apart from pay increases or from subsidies. This increase comes from Government policy. Public expenditure this year in real terms is £725 million more than it would have been after the cuts proposed by Mr. Anthony Barber. For the whole of that increase, the present Government are responsible.
That is the position on the Chancellor's borrowing requirement. It must be cut. There can be no real increase in public expenditure. I have never believed in a rigid pattern of Government expenditure, because one has to change it from time to time, but where increases have been made, cuts must be made to offset them.
Although it is always tempting for an Opposition to make capital out of cuts, if the January White Paper on public expenditure follows a sound strategy, in which it is bringing public expenditure

under control, we will not draw political advantage from it and will support the Chancellor in what it is really necessary to do.

Mr. Healey: I hope that we can also rely on the right hon. Gentleman's support for the increases in nationalised industry prices, for which he has been attacking us. Is the right hon. Gentleman aware that the increase in the Estimates published the other day arose from increases in pensions and in expenditure on housing, and also threshold payments in the public sector, for which he alone is responsible? Is the right hon. Gentleman prepared to tell us that he is against any of these elements?

Mr. Heath: I have pointed out that the amount of the increase in real terms is the result of policy decisions. The right hon. Gentleman has given us credit for increasing pensions. Well and good—I accept that. It is right. He has given us credit for increased expenditure on housing. Yes, that is all right.

Mr. Healey: What about the threshold payments?

Mr. Heath: The Prime Minister pressed me constantly when he was in Opposition to introduce threshold payments. He should not now, through the Chancellor of the Exchequer, try to shift the burden. I accepted my responsibility. The Prime Minister had better accept his as well.

The Prime Minister (Mr. Harold Wilson): I accepted full responsibility on threshold payments during the right hon. Gentleman's period of office and during the election. As my right hon. Friend the Chancellor of the Exchequer has pointed out, in real terms—nothing to do with inflation or thresholds—the whole increase is due to higher pensions and more expenditure on housing. The right hon. Gentleman is condemning the increase in real terms. What is he condemning—the increase in pensions or the increase in housing expenditure? Which would he cut?

Mr. Heath: As usual, the Prime Minister is trying to change the question. What I am saying is that these increases—

The Prime Minister: In real terms.

Mr. Heath: —in real terms are the result of Government policy. It was Government policy which increased expenditure on pensions, and the present Government have always claimed credit for the housing programme. Let them accept responsibility for the expenditure as well.

The Prime Minister: The right hon. Gentleman has accepted that the real terms increase in Government expenditure is the Government's responsibility. He has not replied to the question put by my right hon. Friend the Chancellor of the Exchequer. The right hon. Gentleman knows the facts. Pensions and housing explain the whole amount in real terms. Will the right hon. Gentleman say which he would propose to be cut? Would he cut pensions or housing, or neither?

Mr. Heath: The right hon. Gentleman knows that the Government contribution to pensions is small in any case. By far the greater part has to come from the National Insurance Fund. On housing we made it plain at the General Election that we did not agree with the large amount given to local authorities for the purchase of private housing. We never agreed with that policy, and I repeat that statement now. If the Chancellor is prepared to bring Government expenditure under proper control, he has a better chance of keeping the money supply under control as well, and this, too, is necessary. [HON. MEMBERS: "Oh."] Oh, yes. But the right hon. Gentleman seems to believe that money control always has to be at a fixed rate. Nothing could be further from the truth. He should read some of the monetarists' arguments and see. Of course there can be a change of rate. What is essential is that when we have a Budget deficit of this kind we must keep our monetary policy under control.
As I have already said, as far as the prices and incomes part is concerned this Government have to go out and fight for a proper relationship between wages and the economy. We must agree on a shift of real resources to industry and exports, which implies a cut in standards for the rest of us. It means less for wages and less for other public expenditure. This must be faced. We cannot go on with figures of the kind announced today. It means that priority must go to higher profitability for British industry, however

much hon. Members opposite below the Gangway may dislike it. Without it, unemployment will increase. Nothing less than that will happen, unless the Government are prepared to insist that firms maintain people in employment—in which case, the Chancellor must find the money, in which case we become more and more of a subsidised economy, unable to compete in the export markets of the world. That would be the outcome of a policy of that kind.
We must find a means to restore the capital market, to enable British industry to gain, from institutions and others, the savings that it wants. There must be a realistic approach to all these matters affecting the capital market, including the capital taxes which we debated yesterday, and on which my right hon. Friend the Member for Finchley (Mrs. Thatcher) spoke.
As for subsidies, we kept them to a low level. This Government have gradually increased them, and they are now finding that there is a danger that these subsidies will increase even more. They have to face up to the fact that we are in no financial position to go on in this way at this moment and that the changes in world prices which are reflecting themselves here must reflect themselves in consumer expenditure. The Government are doing it with nationalised industry prices. With respect, I did not attack the Chancellor; I said that they have to be taken into account in the level of inflation in the coming year.
That is one of the hard things which must be faced, and the same applies to changes in world prices, which now, at last, the present Government are acknowledging. If they had been prepared to be honest when we were in power, they could have supported a policy which was prepared to tell the unions and the employers that this was what was happening in the world, and to take the action necessary to deal with the situation.
I can go on to the question of energy saving. The Secretary of State's measures the other day were pitiful. We must realise that we cannot afford a deficit of this kind on purchases of overseas oil. A saving of £350 million, eventually, was the Secretary of State's proposal. That is one month's oil deficit and less than the £404 million of last month's current


account deficit. That is the scale on which he is working. [An HON. MEMBER: "Piddling."] As my hon. Friend says, it is piddling.
Also, far too little is being done about saving the use of energy in industry itself. However much Ministers may criticise our action last December, it showed that industry could dispense with 10 per cent. of its fuel supplies without in any way interfering with production and that, given time, it could save much more than 10 per cent. and benefit the country by that amount.
We need, moreover, a crash programme on North Sea oil. There is no doubt now—all the evidence is there—that progress in North Sea oil development is being consistently slowed down as a result of the Government's approach and policies. Marginal fields are now not being developed because of the uncertainty. Investment in equipment for oil extraction is now being slashed. Weeks and months have been wasted. One day lost in development of North Sea oil costs us £10 million across the exchanges. The total savings of the Secretary of State, with all his effort, amount to between £10 million and £15 million. So all that he has saved is one day to set against the months which are now being lost in development of North Sea oil.
I do not believe—all the experts no longer believe—that this country can be self-supporting in oil from the North Sea by 1980, as was originally intended, and most people will say that if we are self-supporting by 1985, that will be a remarkable achievement. These are the consequences of the delay, the indecision and the policies towards public ownership of the Government in North Sea oil—and they are immensely damaging. What is more, the calculation that by 1980 we could have to borrow £15½ billion sterling to pay the deficit on our trading account meantime has to be increased by another five years' worth if we do not supply ourselves permanently until 1985. That is the scale of the problem. Again, the programme of keeping Britain in Europe, as we now agree, must be pursued energetically and speedily.
There are also some things that the Government must stop doing if they are to produce an answer. In the crisis that I have described, it is madness to press

ahead with nationalisation plans. It is absurd to hound the saver, the investor, the small businessman and the farmer in the way that the Government are doing.
It is wrong just to permit concession after concession to those who try to obtain their ends by extreme and disruptive means, and leave at their mercy those who are working for a moderation in our society in every way. This is so foolish and it is another policy that the Government have consistently followed. The Government have to encourage the creation of wealth and not damage it. They have to produce a training programme because it will be urgently needed. It is needed in Scotland to an extent even greater than we were able to achieve to enable people from Glasgow to go across to the scene of North Sea oil development on the East coast.
Of course, it is the small businessmen and shopkeepers who have been particularly badly squeezed between taxation and the rates burden which still faces them; with some reduction in consumer demand in the New Year, which must come about, they will be in great difficulties. These are the problems facing the economy.
We have been talking particularly about our own affairs, but what we are really seeing today in the outside world and in this country is a massive redistribution of power. Unless we in this House recognise that, we shall never have a corporate mind which can deal with these problems. The first thing externally is the massive shift of resources to the oil-producing countries and the raw material-producing countries. At the moment, in many ways, this shift is only financial; it is balances, but in real terms it means a shift of resources and production from the industrial West to the raw material-producing countries.
At OPEC we are being held on prices which are consistently being increased. When one looks back at the UNCTAD of 1964 and thinks of the low prices and what we try to do to help the balances of payments of the raw material-producing countries, and then considers the level of their prices today and what their balances of payments are getting—look at sugar, for instance—does anyone believe that those countries will ever allow those prices to go down again to anything like their former level? Does anyone think that they have not learned the lesson of OPEC


and that they will not be able to join together, to organise themselves? That is what the industrial West must face. That is the transfer of power which is going on in the world.
I hope that those who have this newfound power will exercise it with responsibility, because of the damage that they can do by changing the other power relationships in the world—whether it is damage to NATO through the West or the strengthening of the Warsaw Pact because of the dangers which face all of us. That sort of power shift can affect their friends and can then be to their own detriment. I cannot believe that it is in accordance with the foreign policies of many of these countries that this should happen, so I would ask them to exercise responsibility.
It is also true that we in this country are not suffering only from a technical imbalance or a financial difficulty. For a long time a shift of power has been taking place within the United Kingdom, between the constituent parts of the United Kingdom and between those in industry in the United Kingdom. That is the shift of power which is taking place. The real job of political leadership and of this House is to judge whether this shift is genuine and has to be accommodated or whether it is superficial or is the result of lobbying of one kind or another.
What we have to do in this country is to recognise that the economic malfunc-tionings which are represented by inflation, by the balance of payments problems and by rising unemployment are symptoms of the fact that we have so far failed to adapt ourselves to the power changes which have been taking place in these last few years. I do not believe that the right process is to follow that of the Secretary of State for Employment and just to give way to all the changes in power. I do not believe that for a moment. I believe that they have to be accommodated in changes in our industrial system which will enable all of those in industry to exercise a responsible attitude in the economic crisis we now face. I believe, therefore, that we have to restore confidence to our institutions and to our society by a change of this kind. If we can achieve again that unity, our problems will be much easier to solve.
The task facing the British people today is, I think, the most formidable that we

have faced in peace time. Many criticisms are made of us as a nation—that we are slow to seize opportunities, and slow to respond to danger. Some will say that our social system is outdated. Others will say that our economic attitudes are based on division rather than co-operation. Some will say that we have not reconciled ourselves to the loss of worldwide power, nor have we completely accepted the new European Community of which we are a member. In all these criticisms from the outside world there may be an element of truth. But what no one can deny—within or without—is that the British people throughout their history have beaten off every challenge when they have realised what is at stake.
Today in this country everything is at stake. Inflation at today's levels, let alone the increasing rate that is now inevitable, can destroy individual and corporate savings. It can destroy our economic potential. It can destroy our social structure and both individual and corporate faith in the future. It can destroy our power in the Community and our influence in the world. It can destroy the very basis of law and order on which our society exists and the very freedom for which so many generations in this country have fought. That is what is at stake today.
The response required is a national response and it must be one of individual effort as well as corporate effort in the whole length and breadth of the country. It must be a response of preparedness to forgo in the short term in order to ensure the interests of the longer-term future and of future generations.
I am convinced that at this moment the British people are prepared to make just such a national response to a national economic crisis. It is because so far Her Majesty's Government have failed to acknowledge this crisis or to take the necessary measures to bestir the nation that we shall vote against them tonight.

5.3 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey): I must confess to a certain diffidence about intervening in what is clearly a two-day Conservative Party selection conference, and I think that others may share my melancholy at the thought that if this morning's newspaper reports are true, our proceedings may be


distorted for a period of weeks every year while the Opposition agonise over the inadequacies of their leadership.
The right hon. Member for Sidcup (Mr. Heath) opened his speech by saying that he welcome the debate as an opportunity for the Opposition to put forward constructive proposals for solving our national problems. I listened to him very carefully. It is true that at the very end of his speech we had a few paragraphs of perfunctory analysis—all at far too high a level of abstraction to use as a guide for action—but for the most part his speech was one of those familiar shrill tirades on conventional party-political lines. I propose to give him a friendly cuff or two at the end of my remarks so that I may respond in the spirit in which he opened the debate.
I welcome this opportunity, even so soon after the Budget debates, to discuss the state of the economy before the House rises for the Christmas Recess at the end of one of the most difficult years in our country's history.

Mrs. Elaine Kellett-Bowman: Thanks to you.

Mr. Healey: I want to deal with the international and the national aspects of our problem in turn, and first, the international context, to which the right hon. Gentleman gave surprisingly minuscule attention in his somewhat lengthy speech. [HON. MEMBERS: "Rubbish."] The outlook has darkened a good deal even in the last five weeks since the Budget debates. I am talking about the international situation. No one now denies that the world is in a recession. The question is whether it moves from recession into slump. In any case, it now appears possible that in 1975 world output and trade may not grow at all, and recovery could be postponed until 1976. If this is proved to be the case, next year could be even more difficult than this for Britain and for most of her partners in the world. So I make no apology for the efforts that I have made over the last nine months to warn my colleagues abroad of the dangers and to seek united action to overcome them.
I think that the House will recognise that I have been not without success. By the autumn, there was general agree-

ment, both in the Community and in OECD, that unemployment is now as serious a danger as inflation.

Mr. Peter Rost: At 8·4 per cent?

Mr. Healey: I pointed in my Budget speech to the central rôle of the United States and Germany in this regard. If there is to be a revival of world activity in trade, these two countries must provide the decisive impetus and the environment in which others can introduce expansionary measures without too much fear of balance of payments repercussions. I think that the whole House and the country will be grateful for the contribution which Germany is now making in this regard under Chancellor Schmidt, both in an international context and in German domestic policies.
On his recent visit to Washington, Chancellor Schmidt discussed with President Ford the co-ordination of economic policies. They agreed that the world economy had slipped into recession, and President Ford welcomed the measures which the German Cabinet were about to introduce. These measures were announced last Thursday and they reveal the determination of the German Government to bring about a solid upswing in domestic demand though without increasing inflationary tendencies. Indeed, it was recognised that appropriate expansionary measures can moderate inflationary pressure by reducing unit costs.
This is a welcome counterpart to my own argument—so far, unfortunately, lost on some hon. Members of the Opposition—that restrictive policies which create unemployment can make inflation worse rather than better.
In France, too, the Government are taking steps to check rising unemployment, with more promised for next year. New measures to stimulate the economy have been introduced in the Netherlands.
In the United States present policy can best be described as one of continuing caution. There have been some signs of slight relaxation in monetary policy in recent weeks, but the general opinion seems to be that this is unlikely to be sufficient to underpin a sustained recovery in the economy. Indeed, my colleague Mr. Simon warned only yesterday that unemployment in the United States was


likely to reach 7½ per cent.—which I understand may mean 7½ million people out of work—before the upswing begins.
The prospect for the world economy as a whole, therefore, remains uneasily balanced. There will, however, be an opportunity for further discussion of a concerted approach when I meet my colleagues in the Interim Committee on Monetary Reform of the IMF in Washington next month. I believe that some shift in American policy now is inevitable, but it will be critical for all of us how soon and how large that shift proves to be.
We must all recognise that very little that is done now, either in Britain or elsewhere in the world, is likely to have much effect on world trade during the next 12 months. The major part of the January meeting of the IMF will be devoted to considering new machinery for recycling the oil producers' surpluses. Without such machinery all our efforts to discourage restrictive fiscal policies will be wasted, because consumer countries will not be able to import the oil they need to stay in business. Moreover, the strains on the international banking system could soon prove intolerable.
At the IMF annual meeting in September I suggested a new facility in the IMF for the investment of petrodollars as a basis on which we could co-operate in the distribution of finance between the oil consuming countries. I envisaged a facility which would be flexible, open-ended and capable of responding to market conditions, and which would also give the producers the advantage of investing in an excellent asset in the form of a claim on the IMF. Since September, the fund staff have been putting flesh on these proposals and I believe that next month we can reach agreement in principle on the scheme. It has already been supported by all my European partners and has been well received by the oil producers, too as I found in Saudi Arabia last week.
But even this will not be a complete answer. We need a variety of mechanisms, and the latest proposal is that set out by Dr. Kissinger and Mr. Simon, the United States Treasury Secretary. This is not the same as the IMF facility, but it could certainly play a useful rôle. It recognises that we cannot afford to test

the limits of recycling through existing private intermediaries and as such it represents an important stage in the evolution of American thinking.
I hope that it will be possible to make progress on this American concept, too, in January. But it is highly improbable even if in January the IMF members support this in principle—and some Governments are very hostile to the concept at the moment—that this American machinery should be operating before the end of next year. Therefore, there is little chance that it would be available in time to avoid excessive strains on the world banking system.
Moreover, the American proposal offers no rôle either for the oil producing countries or for the less developed countries which are suffering so seriously from the recent increase in oil prices. Now that, in Martinique, President Ford has recognised the case for a general dialogue between consumers and producers—as President Giscard d'Estaing suggested—I hope that he will also recognise the value of an extended IMF facility as the basis for such a dialogue. The Saudi Government officials to whom I talked last week recognise the value of the enlarged IMF facility in this respect.
Success in these international negotiations is of critical importance to our national economy here in Britain, but of course it is not enough. What we do by our own efforts is vital. What we can achieve in international negotiations on these issues can simply create the conditions in which our own efforts are worth while.
I turn to developments in our national economy, since the Budget, and particularly to the events of last week, to which the right hon. Gentleman referred. I shall deal first with the parity of sterling. I must confess that the only word that I can use for the right hon. Gentleman's remarks about this is "impudence", because the value of the £ sterling fell by close to 20 per cent. in the 20 months between my predecessor's decision to float the pound and his leaving office at the end of February. Indeed, the effective devaluation of sterling on 16th January was 20½4 per cent. In the past 10 months there has been a further fall of about 4 per cent.


to, I think, at lunchtime today an effective devaluation of 21·5 per cent. But in the first six months of my party's tenure of office the pound remained exceptionally stable at around 17 per cent.
Since then we have had two recent periods of disturbance in the markets. The first was in November when the value of the American dollar was moving rapidly against the Swiss franc, and the German mark, and sterling, as always, was affected by these movements. The second was last week. That was occasioned by some selling of sterling by American oil companies which had expected to make their quarterly payments to Saudi Arabia in the middle of the month in sterling but appeared to have been told otherwise at a late stage in their preparations.
The reaction of the Press and other observers to the fact of a change in the payments arrangements for oil was very much overdone—I was glad that the right hon. Member for Carshalton expressed the same view in an interview on television last week—because other Middle East States changed their arrangements some time ago without in any way jeopardising our ability to attract capital inflows to finance our current account deficit. As I explained to the House last Friday—and it should have been clear from the publication that week of the latest quarterly balance-of-payments figures—the use of this or that currency as a vehicle for making oil payments should not be a matter of concern. What matters greatly is how and where the oil producing countries, having received their revenue from the oil companies, decide to invest their money.
In the first nine months of this year the oil exporters as a group added almost 4¼ billion dollars to their holdings of sterling or sterling denominated securities, and this inflow, together with the programme of public sector borrowing, initiated by the Consevative Government when there was no oil deficit whatever to contend with, and the initial drawing for technical reasons on the Government's 2½ billion dollars facility, has enabled us not only to finance our current account but also to top up our reserves.
I was greatly reassured by what the Saudi authorities told me last week

about their intention to go on investing in sterling, and the House will be aware that since then the Kuwait authorities and the United Arab Emirates have given similar assurances—

Mr. Peter Tapsell: Does not the right hon. Gentleman realise that the aspect of our debate which causes the greatest concern outside this House is the preoccupation of the two Front Benches with proving to one another that they have been less, or slightly more, successful in securing the parity of sterling? What the whole country, and indeed the world, is waiting for is evidence of some determination by the present administration that this problem is now to be tackled. Is it not absolutely clear that sooner or later, in order to deal with this problem, we must have a wages freeze and import controls, and ought not the right hon. Gentleman to announce such moves now?

Mr. Healey: I am aware of the point the hon. Gentleman makes, and that is why I was so disappointed by the speech of the Leader of the Opposition. As a Member of the House for many years, the hon. Gentleman must not blame me if on occasions when I am speaking about the policy of the Government I refer to some of the attacks on the Government by the right hon. Gentleman, made in a debate for which the right hon. Gentleman called. I cannot ignore statements made by the right hon. Gentleman, and I do not propose to do so. It has never been my nature, I regret to admit to the House, to turn the other cheek.
However, if I might now continue, the whole House will welcome the assurances given by the oil producers, because they make an essential contribution towards financing a deficit which is inevitable until the OPEC countries can absorb imports of goods and services equal to the value of the oil they export. But they impose a heavy burden of interest payments which we must reduce as fast as we possibly can.
Unless we are seen to be making progress in our trade deficit—this is the point which the hon. Gentleman wanted me to make—we may not indefinitely appear to be so suitable a country in which to invest. It is therefore more than ever necessary to carry through the changes in the structure of our economy to which I


referred in my Budget speech. We must achieve a substantial shift in the pattern of our output towards exports and capital investment long before we receive the full benefit of offshore oil.
I left plenty of room in demand for exports, and at present levels sterling remains competitive, but the evidence available so far this year suggests that British export prices have been rising faster than those of our competitors, although there is some evidence that, perhaps, the last month's improvement in the French trade figures may have been due in part to a big increase in their export prices.
The latest figures for Britain show that the erosion of our competitiveness has been a good deal smaller over the past nine months than earlier appeared. The exchange rate changes in the past few weeks will help to keep our exports competitive, but in order to retain this position and to minimise the effects of international uncertainty, is it essential that we slow down the rate of domestic inflation. British exporters will need to be vigorous and determined if we are to hold and develop overseas markets, and if our exports falter the implications for employment, for investment and for the living standards of the whole country will be serious.
I frankly admit that the trade figures for November were disquieting.

Mr. Norman Lamont (Kingston-upon-Thames): Since the right hon. Gentleman has said what he has about his forecast for world trade now being very different, and it was assumed in the Red Book both that world trade would grow at about 5 per cent. and that British exports would grow by not much less, and since the right hon. Gentleman has also made his comments about our exports becoming much less competitive, is it not now clear, only six weeks after the Red Book was published, that the prospects for British exports are radically different?

Mr. Healey: I think that they have worsened, but, if the hon. Gentleman will took at my words when reported in HANSARD tomorrow, I think that he will find that I said that it was possible, if nothing was done, that there could be no increase in world trade and output in the coming 12 months. With respect,

the prospects are worse than they appeared when I made my Budget speech, but, on the other hand—I am coming to this—there are great opportunities for increasing British exports to the oil producing countries of which we are not at present taking anything like full advantage.
I had just referred to the trade figures in November. There were, as always, some special factors. Perhaps the November figures reflect the first effect of the slow-down in world activity to which the hon. Gentleman has just referred. It is all the more important, therefore, that we look to those markets which offer the prospects of rapidly growing demand for our products, and those markets are to be found in the oil producing countries. There is enormous potential here if we take our chances.
I believe that my visit to Saudi Arabia last week opens the door to a big increase in British exports at least to that country. As I told the House on Friday, a joint working party consisting of officials of our two countries will be meeting in February to develop a medium-term programme for increasing British exports to that country. [An HON. MEMBER: "Why February?"] For various reasons—if I may answer that question. The importance of the meeting in February is that the Saudi Arabian Government will be finalising their five-year plan in the first three months of next year, and until they are clear about their requirements it will be difficult for us to decide the extent to which we can meet them.

Mr. Robert Adley: To take up the point made by my hon. Friend the Member for Horn-castle (Mr. Tapsell), and hoping that the Chancellor will not spend too much time on blaming other people, may I put this question? The right hon. Gentleman has talked about exports. Does he not realise that the exports which he requires, and which we all desperately need, are likely to be produced only by companies within the private enterprise system, and many of these companies are finding it very hard to convince themselves that his Government are doing their best to give them every opportunity to make themselves profitable and thus to encourage them to export?

Mr. Healey: I am not sure whether I hope that the hon. Gentleman will catch the eye of the Chair later, but that was a speech in the form of an intervention, making points with which, of course, I shall deal in a few minutes.
Apart from the international factors to which I have referred, the key to our success in running the economy next year will be our ability to control inflation. This will determine our ability to sustain exports, to prevent mass unemployment, and to attract overseas finance.
I must remind the House, since the Leader of the Opposition made so much of the matter, that we inherited a very high rate of inflation. The retail price index rose 1·9 per cent. in January this year and 1·7 per cent. in February—in other words, in those two months at an annual rate of 21·6 per cent. Yet, in spite of the continuing rise in oil prices, we achieved some moderation in the rate as the year wore on, a point which Sir Arthur Cockfield, who was, I believe, appointed by the right hon. Gentleman as tax adviser to his party when in opposition, made in the Report of the Price Commission which he published after the election.
Sir Arthur Cockfield pointed out—I shall quote the way he put it—that the prices of products which he controlled through the Price Commission rose 23 per cent. last winter, 16 per cent. during the spring, but only 9½ per cent. in the summer.

Mr. Rost: When will the Chancellor tell us what he intends to do?

Mr. Healey: I am coming to that. The hon. Gentleman must contain himself, and the less he intervenes the faster I shall reach the point.

Mr. Rost: The nation is waiting.

Mr. Healey: The retail price index is now rising again, as I warned it would. [HON. MEMBERS: "Oh."] Yes, I did in September, and hon. Members can look it up in the Conservative Central Office files if they wish. Nobody can be satisfied with last month's figure. It was 1·8 per cent., as high as in the last months when the Conservative Government were in power, although I must point out that a significant part of this increase arose from increases in the price of sugar and second-hand cars, which have very little

to do with Government action or with the social contract.
At least, the House can now be satisfied that Government fiscal policy is no longer the main villain as it was last year, for the money supply is at least under strict control. Both Ml and M3 are well under last year's rate, M3 being well under half last year's rate. Both are well under the growth in money GDP.
Against this background, a public sector borrowing requirement of £6·3 billion, although disturbingly high, as I said in my Budget speech, is not actually fuelling inflation. Indeed, as the right hon. Member for Down, South (Mr. Powell) pointed out in our Budget debates and again yesterday, to a large extent the size of the public sector borrowing requirement is the inevitable counterpart of the deficit in our balance of payments, and, if I tried to remove it, it would mean squeezing other sectors of the economy, thus producing a large fall in national output and a large increase in unemployment. However, as I say, I do not think that anyone can claim that Government fiscal policy is any longer fuelling inflation as it did last year.
Public expenditure, too, is under strict control, as will appear from the White Paper to be published next month. I noted, in passing, that the right hon. Gentleman complained that it was not appearing in December. He will recall that in similar circumstances he did not publish his annual paper on public expenditure for 1971 until the January.
Next year, local authority expenditure, which for the past three years has been rising at 8 per cent. a year, is to be held to an increase of 4 per cent., which, in the circumstances, I think, is the strictest control we can hope to exercise so quickly.
Last year, part of the rise in the RPI was due to the rise in import prices— above all, the rise in the price of oil. Next year, import prices are likely to rise much less, but, contrary to our earlier expectation, they are likely still to rise substantially. Nevertheless, as I predicted last summer, the key to controlling inflation in 1975 is likely to be the level of wage and salary settlements.
My right hon. Friend the Secretary of State for Employment will deal with this matter in detail when he winds up, and I


shall content myself now with only two points. First, three-quarters of those who settled since July received increases within the guidelines laid down by the TUC. Second, of the increase in earnings over the past 12 months about half is accounted for by the threshold agreements introduced by the Leader of the Opposition, and a substantial further part was caused by public servants, such as nurses and postmen, who had been unfairly penalised by the statutory policy, catching up as soon as opportunity arose.
The striking feature—it struck me again today—is that in any event the Opposition offer nothing to put in the place of the social contract. There was a time when they were in favour of a statutory policy, but now they claim that they want a voluntary, not statutory, policy, and what they claim is that they will make their voluntary incomes policy work by somehow or other bringing the CBI into the social contract.
Do the Opposition think, for example, that the attitude of the mineworkers' leaders to their current claim and the negotiations following it will be affected by the inclusion of the CBI in the social contract? That is a preposterous idea. Of course, I agree very strongly that the Government should seek the same constructive relationship with business and industry as it has achieved with the trade unions, but that is not the same as trying to bring industry or the CBI into the social contract.
The key here is what the Government can do to ensure that industry produces more exports and more investment. In Britain wage settlements over the last 20 years have not been higher than in most of the countries which compete with us.

Mr. Adley: They are now.

Mr. Healey: No, they are not. The trouble is that the increases have not been accompanied by the same growth in productivity as has been experienced in other countries, and that is not just a question of investment.

Mr. Adley: You are right.

Mr. Healey: I know that I am. I am all for bringing hon. Members along with me and I have no doubt that by the end

of the debate we shall have achieved a form of national unity.
Investment is not the only key to increased productivity and I strongly agree with hon. Members on both sides of the House who pointed out that to reduce the number of industrial stoppages would do more for output in the immediate future than any conceivable increase in investment. Whatever view the Leader of the Opposition might take on the Conciliation and Arbitration Service as a determinant of wage settlements, I am sure that he will agree with me that it can play a major rôle in reducing the number of stoppages at every level.
Investment is a major component in productivity and the problem here again is not so much the rate of investment. In this respect Britain has not done very differently from many of its competitors, such as Germany. The problem has always been that British industry has a much lower rate of return in output per unit of investment than Germany, Japan or the United States. The NEDC has decided that it will concentrate on this aspect of the problem in the next 12 months because this is a problem that cannot be dealt with by Governments at the macro-economic level. This is an essential problem for particular individual firms and companies in the ordering of their affairs.

Mr. Eric Moonman: My right hon. Friend has referred to the importance of the micro-aspects rather than the macro-levels of the economy. While he is right to rebut the idea that simply introducing the CBI into the social contract would help, why is it not possible to widen the social contract to introduce a feeling of personal involvement among management and executives?

Mr. Healey: I shall be dealing with my hon. Friend's point later. The Government have a duty to provide the necessary environment in which what my hon. Friend called the micro-economic changes can take place. The level of demand set by Government policy, the availability of finance, the return on capital, the amount of taxation are all factors which create the climate in which decisions at company level need to be made.
We face a special problem here during the world recession. It may be very difficult, no matter what opportunities and


however much money we offer, to persuade many firms to invest a lot of money in new capacity, in what some call "green field investment", because there is not enough confidence in the level of world demand for the next few years.
But there is none the less great scope for improving productivity from existing capacity by the sort of investment which, for example, removes bottlenecks in the production process. I have been glad to find in talks with leading industrialists in recent weeks that many of them plan, in spite of all the problems, to concentrate investment in this sector over the coming months.
The Budget measures and further changes in the Price Code, which my right hon. Friend the Secretary of State for Prices announced this afternoon, prove the good will of the Government towards the private sector. I found no questioning of this good will in my talks with the CBI. I am prepared to consider whether anything else is needed, but I must be assured of some return for anything I do in terms of investment. I do not want to find myself in the position in which the Leader of the Opposition found himself when in Government when he complained to the Institute of Directors that he had done everything it had asked and he had nothing in return by way of investment. The right hon. Gentleman will recall the luncheon, which was fully reported in the institute's journal a year or two ago.
The Government have some right to demand a return from industry in terms of investment and exports in the same way that it has a right to demand a return from the trade unions in terms of the level of wage settlements. The Government have the same duty to take the necessary measures to protect the nation's interests if they fail to get that return either from the unions or from business. If industry and the unions respond, as I hope and believe they may, then I think this is the way to forge a type of national unity for which the whole nation has been crying out and which I think the Leader of the Opposition genuinely desires.

Mr. Tom King: Is the Chancellor serious when he says that he knows that private industry feels that the Government have its good will at heart? Does he not realise that industry is acutely

worried over the Employment Protection Bill of the Secretary of State for Employment, and over the attitude of many members of the Government, including the Minister of State for Industry, who restated last week that it is his aim to abolish the whole basis of capitalism in this country? Does he believe that industry has confidence in the Government?

Mr. Healey: I know that there are many in industry, just as there are many in the trade unions, who disagree with many aspects of the present policy. But from the many talks I have had, both official and informal, with industrialists over the last five weeks, I think there is a genuine recognition now of a Government desire to help, but also a recognition that that help can honestly be offered only in return for undertakings on the part of industry, too.
Let me turn to the speech by the right hon. Member for Sidcup. What disappointed me again today, and I suspect that it disappointed some of his hon. Friends, is that he showed no sign of having learned anything from the experience of his three-and-a-half years in office. The right hon. Gentleman quoted the right hon. Member for Leeds, North-East (Sir K. Joseph). Let me quote him now. The latter pointed out in a letter to the Economist that at the end of the right hon. Gentleman's period of office,
We had an historic high rate of inflation, an enfeebled economy, the worst relations with the trade union movement in decades and a lost Election with the greatest fall in our share of the vote since 1929.
He went on to say
Surely this was sufficient incentive to rethink".
I would have thought so, too, and yet there was no sign of that either in the right hon. Gentleman's speech today or in the speech by the right hon. Member for Finchley (Mrs. Thatcher) yesterday. There has been no rethinking of the problems in the Conservative Party over the last nine months in spite of the patent evidence of failure in the economic situation faced by that Government at the end of their last period of office and their failure to win the General Election at that time.
The right hon. Member for Down, South yesterday described one of the contenders to the throne, the right hon. Member for Finchley, as Satan rebuking


sin. The Leader of the Opposition is the Prince of Darkness himself. He is the Beelzebub of Bexley. There was a time when he had a reputation for clear thinking and plain speaking. But we have had no clear thinking or plain speaking from him today on the major problems on which he sought this debate in order to make constructive proposals.

Mr. Rost: rose—

Mr. Healey: I will not give way. I am anxious to quote the Leader of the Opposition accurately in what he said when he was interviewed by a television commentator last week. He was asked,
Where do you stand on the major dilemma any government faces? Do you go for deflation to preserve the value of money or reflation to save jobs and prosperity? 
The Leader of the Opposition replied,
I do not think you can put it as simply as that. Any government has got to use all the economic measures at its disposal in order to deal with the economy, but we are in a particularly difficult situation.
The right hon. Gentleman was also asked,
Now that the Government's said that it won't have a wage freeze, would you like one? 
He replied,
Well again, what they've got to do first of all is get the employers and the unions together and having explained the position very frankly to them see how far they can get.
That impeccable sort of sentiment is the only positive contribution we have had from the right hon. Gentleman to the debate ranging on economic policy in all parties, and outside all parties, over the past nine months.
The right hon. Gentleman said again, and so did the right hon. Member for Carshalton in the Budget debate and on television last week, that the Government should allow no increase in Government expenditure from now on, which would mean cutting £900 million off the expenditure plans published by the previous Government last December. Yet the Opposition told us not to touch defence expenditure, which under their plans was due to rise by £400 million next year. They told us that we should have given twice as much aid to industry as I gave in the last Budget—£1,500 million. They have listed a whole range of additional social security benefits that they want. They committed themselves

in the last election to abolishing the rates, and to 9½ per cent. mortgages. The total cost of those proposals, as the right hon. Gentleman knows, is about £3,000 million. On top of that, we had another pretender, the right hon. Member for Taunton (Mr. du Cann), writing in the News of the World, on Sunday that we must cut taxes.
This farrago of dishonest self-contradiction is made all the worse by the shrill and hysterical abuse that the right hon. Gentleman pours on anyone who has a positive policy to put forward, and by his prickly petulance at any hint of criticism, however friendly. Worst of all—we saw it in spades this afternoon—he takes obvious satisfaction, despite his denials, in any item of news which bodes ill for the nation, and has a determination to ignore anything that bodes well. The fact is—the right hon. Gentleman knows it as well as the rest of us—that he sees his political survival as depending on the nation's disaster. He has a vested interest in catastrophe, and this robs his criticisms of all credibility. Even as a prophet he is no Cassandra. He is more like the Fat Boy in "Pickwick Papers", whose only aim was to make our flesh creep.
That is no basis for national unity. What we need is a Government who will attempt to understand the problems and attitudes of others, even when they disagree with them, a Government who will take pride in the nation's successes— for example, the big reduction this year in the non-oil deficit; the maintenance of high levels of employment, when unemployment is rising to record levels in many other countries; and the sort of compassion which put pensions, families and houses first, and which the right hon. Gentleman for one moment purported to attack in his speech this afternoon, until he was interrupted.
Above all, what we need is a determination, while recognising the immense and daunting scale of the problems faced by Britain and the world, to make the sacrifices needed to pull through.

Mr. Nigel Lawson: Before the Chancellor sinks into a sea of cliches, will he answer the question that he complained my right hon. Friend the Leader of the Opposition did not answer? Does he


intend to deflate the economy to preserve the purchasing power of money, or does he intend to inflate it in order to preserve jobs?

Mr. Healey: The hon. Gentleman counts himself—[HON. MEMBERS: "Answer."] I will answer. The hon. Gentleman will be aware that only five weeks ago I presented a Budget, and I embodied my judgment in the Budget decisions. The Budget increased demand by about £600 million, on top of the £200 million increase in demand in the July measures, on which the Leader of the Opposition put down a motion of attack and then failed to vote when it came to it.

Mr. Lawson: Will the right hon. Gentleman answer the question?

Mr. Healey: I have answered it. I believe that it was necessary to increase demand in order to maintain employment at adequate levels, and I did so.

Mr. Robert Carr: May I put the question in rather more specific terms? As the right hon. Gentleman has said that it is essential to hold down inflation, can be explain why, in the whole period for which he has been solely in control, inflation has risen under his measures from 8·4 per cent. in September to 21·3 per cent. now? What will he do about it? Will he continue to let it go up, or will he bring it down? If so, how will he do it?

Mr. Healey: I dealt with the whole problem of inflation at some length earlier in my speech. [HON. MEMBERS: "No."] I take it that the right hon. Gentleman wants a reply. As I have made clear, there is bound to be a further increase in the rate of inflation, because of the increase in world prices, which none of us expected a few months ago; the increase in nationalised industry prices, on which I hope we shall continue to have the support of the Opposition; and the relaxations in the Price Code, which were strongly supported by the Opposition, and which they have consistently maintained did not go far enough.
But I believe that it is possible to reduce the amount of wage inflation through the successful operation of the social contract.

Mr. Rost: When does it start?

Mr. Healey: I have dealt with that, too. If the hon. Gentleman takes the trouble to turn up after dinner, my right hon. Friend replying to the debate will blow the hon. Gentleman out of the water—if he cares to interrupt again on that matter.
As a nation, we have never in peacetime—here I agree with the Leader of the Opposition, and I have been saying it consistently since last December—faced economic problems of the scale and complexity of those which we face this year, and which may well be even more daunting in the year ahead and on the world scene.
However, I think that the tide will turn in 1976. I shall do my best, as the British Chancellor, to persuade my colleagues to take the measures which may enable the tide to turn before next year is out.
Our nation will receive sorely needed help, on which others cannot count, from the oil round our shores, which will start flowing in quantity round about 1976.
Meanwhile, however, we must accept a period in which living standards cannot rise and could even fall. We shall have to be fitter. We certainly shall not be fatter. We shall have a leaner and more efficient economy. I believe, too, that under this Government we shall have a society invigorated by a unity which has eluded us for a generation of peacetime, because it is a unity based on compassion and justice.

5.48 p.m.

Mr. Jeremy Thorpe: I believe that the Chancellor of the Exchequer gave us a concentrated biographical sketch of himself when he said that he found it hard to turn the other cheek. That is what I found disappointing in his speech, because I believe that the British people today expect the House to express its concern about our present economic situation, to show signs of its determination to attack it, and at the end of the debate to give them some sign of hope. For that reason, I do not think that discussion about the contenders for the throne of the Tory Party, the costing of the Tory economic policy, and the hard work that must have gone into such phrases as "Beelzebub of Bexley". are


relevant or helpful in dealing with the economic situation.
On the credit side, the whole House listened with great interest to the right hon. Gentleman's proposals and hopes about the recycling of world oil surpluses. Here the Government not only have played but are playing a very constructive part. They are not dragging their feet. Probably the right hon. Gentleman will be the first to agree that it is disappointing that it is nearly 13 months since Dr. Kissinger made his speech to the Pilgrims and it has taken the world so long to move such a short way. On that matter we wish him well.
I therefore found little in the Chancellor's speech which showed that there was a new direction, or new hope, or indeed a recognition of the desperate seriousness of the situation.
I was hoping to hear from the Leader of the Opposition something about the Tory Party's current thinking on the question of prices and incomes. This is not a matter—and this will be my only reference to other events—on which one has a second ballot. One has a view now.
The background to our economic situation could not be more bleak. In 1939 this country was the most prosperous in Europe. Today only Ireland and Italy are poorer than we are. The balance of payments deficit for November was £534 million—more than we are accustomed to in a full year. The non-oil deficit doubled. On the basis of the November figure, we could have a balance of payments deficit of up to £6,500 million in one year.
Our volume of exports in September— October was 6 per cent. down. Our volume of imports in October was 2·5 per cent. up. Production is falling by 1·5 per cent. compared with September last year. Although since December 1971 we have had an effective devaluation of sterling of 22 per cent., the pound today appears to be over-valued and has had to rely on massive support from the Bank of England—and it is anybody's guess how much that was. According to today's figures from the Department of Employment, wage rates have increased by 26 per cent. compared with last year. Prices have increased by 18·3 per cent. compared with last year. Both figures

are accelerating. The figure of 2 per cent. growth on which the Chancellor of the Exchequer based his Budget is not likely to be achieved.
Taking the OECD projections of the gross domestic product of various countries, in 1960 our GDP was 112 per cent. of that of France. It is estimated that in 1980 it will be 60 per cent. In 1960 our GDP was 156 per cent. of that of Japan. It is thought that by 1980 it will be about 33 per cent. In 1960 it was 93 per cent. of that of West Germany. It is thought that by 1980 it will be about 60 per cent.
That is not all. The Bank of England, in its "Quarterly Bulletin" for December, said:
More cannot be expected of price control; on the contrary, some domestic prices may have to rise faster to reflect more of past cost increases than has hitherto been allowed.
In the Financial Times of 14th December, Mr. William Keegan, its economics correspondent, wrote:
Wage pressures have now taken over from commodity prices as the main upward push on the cost of living.
In 1966, 1972 and 1974 we set out as a nation to achieve an export-led recovery. Instead we have ended with an import-led collapse. As the Economist said about sterling on 14th December:
In October British exports fell even in value by £97 million and in volume by over 4 per cent. In November the value of exports fell by another £49 million. There has to be a question whether Britain is not following the worst possible exchange rate policy; pricing itself out of export markets by clinging to too high an exchange rate on the eve of world recession. That is the case for letting the exchange rate drop sharply instead of trying unsuccessfully to prop it up".
Against that extremely bleak situation, which no right hon. or hon. Member would deny, what should we as a nation do? I trust that I shall be allowed to put forward one or two suggestions in the hope that they are practical and constructive. The first is a psychological question. It is essential that the Government bring home clearly the gravity of our economic situation. I do not believe that the people yet accept it. It has to be made crystal clear that the problem is not curable by further borrowing on an excessive scale. We shall already owe about £13,000 million by 1980 and, with the best will in the world, the Shah of


Persia will not be able to cure our deep-seated economic problems even if we wish to go on borrowing. We shall not cure them by further mortgaging of the North Sea. Goodness knows how much of that has been pledged in advance.
We shall not cure our problems with blanket subsidies which produce an unreal situation and shield the people from the realities of economic life. To that extent, I welcome the Government's move concerning the nationalised industries which is economically correct. It is wrong that we should be paying £700 million in blanket food subsidies which subsidise the bread of Mr. Harry Hyams as much as they subsidise that of the old-age pensioners.
If the Government make clear to the people the gravity of the situation, the country's response, however tough the measures, will be practical and constructive, providing the people are convinced that those measures are fair and are likely to be effective.
During the election—and this is my second suggestion—I prophesied that within six months, whatever party was returned to power, the Government would be compelled to introduce a statutory prices and incomes policy. I stick to that prophecy. The Labour Party rejected it during the election. The Conservative Party—whose manifesto, I assure the Leader of the Opposition, I read—was incredibly equivocal.
The social contract has been a valiant attempt to solve the problem. In one sense, it is far too rigid because it restricts increases to an across-the-board norm linked to the cost of living and does not permit of adequate machinery to deal with special cases. On the other hand, it is too flexible because the Government have been able to show or to declaim that practically every settlement miraculously comes within the confines of the social contract.
The fact that the social contract has defects can be proved out of the mouth of the Prime Minister in his speech at Cardiff during the election and out of the mouth of the Secretary of State for Prices and Consumer Protection in her speech a month ago following the Budget. Both of them indicated that they were giving serious consideration to penalising

employers who went beyond the norm of the social contract. In other words, they expected that claims would be made which went beyond the social contract and, by inference, that they would be granted by employers. Last week the social contract, in effect, turned on whether Mr. Gormley was able to get out of his sick bed and attend his union meeting.
Even if the social contract were working, do the Government believe that this country can absorb a 20 to 25 per cent. increase in prices and wages year in, year out in the present state of the economy? Is it right to say that we can guarantee the living standards of the people however much we want to do so? Is that a fair economic yardstick by which to ask for the people's support?
As I have said, I believe that we shall require a statutory prices and incomes policy and, unlike the Leader of the Opposition, I have no hesitation in saying what I think it should be. We in the Liberal Party have long advocated the concept of an inflation tax which, I understand from one newspaper, the Cabinet is alleged to be considering. However, I do not believe that an inflation tax which will claw back an excess, either through national insurance contributions in the case of wages or corporation tax in the case of companies, will be acceptable unless at the same time massive help is given to the low-paid and low-income families. The concept of the guaranteed minimum earnings and the extension of the credit income tax system are two ways of bringing that about.
Next, we must restructure industry. Our biggest growth potential is in the sphere of public administration, whether in local government or in the National Health Service. In the NHS there is a grave shortage of doctors and ancillary staff but no shortage of administrators.
If we have to face a recession, that means that people will lose their jobs. I very much doubt whether any Government have yet done a sufficiently clear survey of the growth industries in which there will be opportunities for employment, and whether those potential vacancies will be matched by adequate retraining schemes, so that those who lose their jobs can be prepared immediately for


alternative employment. I suggest that when those people are undergoing retraining they should be paid a proper salary.
The mechanical and electrical engineering industries, the metal goods industries, the extractive industries and housing offer enormous scope for absorbing, after retraining, people who may find that the industries in which they work are declining, partly as a result of Government policies but more as a result of world recession.
I should like to see a genuine float of sterling, possibly within monthly limits, and I believe that that is preferable to straight devaluation. What happens after devaluation is that we have a feeling of well-being which we continue to enjoy until we have dissipated the benefits, when we think to ourselves that we might do it all over again. I should like to see a genuine float of sterling through a crawling peg. That would restore confidence.
It is difficult to advocate import controls. I should like to see a considerable cutting back of imported luxury goods, but there are difficulties. I have no doubt that the Government will look into that, but under GATT and our commitments to the Community that would be difficult, and it could produce contraction. We in this country must do more to help ourselves. There is scope for an enormous increase in food production. I see no reason why over a five-year period we should not knock £600 million off our import bill. When we consider that in 1974, with a £4,000 million deficit, £2,700 million of which was on imported food and £1,600 million on temperate foodstuffs which we could have produced in this country, the Government must surely agree that there is great scope here.
The proposals by the Secretary of State for Energy for saving energy were a welcome start but a small one. They will save £350 million, and that will leave a £2,000 milion oil bill still to meet. When one goes around the country and sees lights blazing, offices overheated and an appallingly profligate waste of energy, one would not believe that there was any requirement on anyone to conserve energy.

Mr. David Marquand: The Liberal Whips' office is overheated.

Mr. Thorpe: The hon. Gentleman is wrong. I have turned off the radiator in my room, and it will remain off until it gets really cold. The radiators are turned off in the Liberal Whips' room and they will remain turned off. If the hon. Gentleman cares to make a further discovery, he will find that some contribution is being made. In parenthesis, I am not impressed when we in the House sometimes turn down the heat simply by opening the windows.
Does our shift system in industry make the best possible use of natural light? Experience during the period of the three-day week showed that people could be much more flexible. By those two methods of energy-saving alone we could knock an immense amount off our balance of payments deficit.
If ever there were a time when we needed international co-operation with our European partners, it is now. The Prime Minister agrees with that and so does the Leader of the Opposition, so I need not open the argument between the Prime Minister and those who sit behind him.
On 5th July 1974 the New Statesman said:
Managers of the economy are judged by their performance on growth, unemployment, inflation, the balance of payments. All of these are going badly.
What the New Statesman said in July has managed to survive the test of time right up to December, and I believe that it is right.
The people want evidence from the Government that they are fully aware of the reality of the crisis. The sixth-form debating speech made by the Chancellor of the Exchequer did not assist in that direction. If the Government with conviction are able to make the people aware of the crisis, they will be entitled to ask the people to accept stringent measures. If those measures are fair and are likely to be effective, the Government are entitled to the support of all parties in the House for those measures, and I am confident that they will receive the support of the British nation.

6.5 p.m.

Mr. David Marquand: As so often happens with members of the Liberal Party, I detected a curious mixture of frivolity and seriousness in the


speech made by the right hon. Member for Devon, North (Mr. Thorpe). However, I agree with him that we are facing a much more severe crisis than either of the Front Bench speeches suggested. I was glad that the right hon. Gentleman struck that note at the beginning of his speech and, now that the Front Bench gladiators have departed, I hope that the rest of us will be able to retain that note.
The country is facing its most severe economic crisis since the war, in many ways a more severe economic crisis even than the crisis of the inter-war period. The present crisis, if it were to accelerate, could actually destroy the United Kingdom and possibly even undermine the foundations of parliamentary government, and that did not happen between the wars. That is the magnitude of the problem.
The crisis has many elements in it, one or two of which I will mention. First, we have a balance of payments deficit of about 8 per cent. of our national income. In other words, we are consuming 8 per cent. more than we produce. We are able to do that because the rest of the world is lending us the money and it is doing so in effect at a negative real rate of interest because of the rate of inflation and the depreciation in the value of our currency.
At the same time, there is undoubted evidence that the rate of inflation is accelerating. None of us in the House takes as gospel what appears in the bulletins of the National Institute of Economic and Social Research, and I was glad to have the assurance from my right hon. Friend that the National Institute is wrong in what it says about the way in which the social contract is being interpreted. If my right hon. Friend gives that assurance, of course I accept it.
Nevertheless, the National Institute forecasts a rate of inflation next year of between 20 per cent. and 25 per cent., and I should be surprised if the forecasts within government were very different from that. The methods used by the National Institute to make its forecasts are similar to those used inside the Government economic machine.
It must be remembered, moreover, that these forecasts cannot take account of

the psychological impact of accelerating inflation itself. Forecasting techniques make use of econometric assumptions based on past behaviour. They cannot take account of the changes in behaviour which are likely to take place if inflation gathers speed. Therefore, I fear that the forecast errs on the optimistic rather than the pessimistic side.
I agree with the right hon. Member for Devon, North that the most alarming feature of the crisis is that there is little sign that the British people feel in their bones that they face a crisis at all. During the February election campaign I was impressed by the number of people who spontaneously came up to me in my constituency and said, "My God, what a crisis you will inherit when you come into power". Some even asked, "Why on earth do you want to get into power at a period of such severe crisis?" That was the mood in February. There was a disposition then for the British people to accept sacrifices and austerity. I am sorry to say that that mood has been dissipated. I see very little sign of it now.
This situation clearly cannot continue indefinitely. If there is no improvement in the balance of payments, the foreigners who are so kind as to lend us their money at a negative return to themselves will take it out of the country. There can be no dispute about that. If domestic inflation is not brought under control, if the forecasts of the National Institute prove true, the balance of payments next year is bound to deteriorate, because inflation in the United Kingdom will be worse than the inflation experienced by our competitors. I also believe that if we fail to bring domestic inflation under control we shall, sooner or later—although it is impossible to say when—proceed from the cantering to the galloping phase of inflation. We may even start to experience what has sometimes happened in some Latin American countries and what happened in the Weimar Republic between the wars, when whole societies lost confidence in money. That may sound a wild prophecy to make in this House, but it may be fulfilled if we fail to control domestic inflation.
What, then, do we do? I believe that the first objective must be to bring home to our people—not only to the people at large but to the key decision makers,


those whose bargaining ultimately determines what the rate of inflation will be— just how serious inflation has now become.

Sir John Hall: How?

Mr. Marquand: I should like to answer that question as I develop my remarks.
The first thing to be done is this—and I do not think Ministers have done it sufficiently although they have begun the process. They must ram home again and again the simple truth that inflation redistributes income from the weak to the strong at any level in society. Because of our history, because our working people, in contrast, for example, to those in Germany, suffered in the past much more harshly from deflation than from inflation, there is a residual feeling at the back of the minds of many trade union negotiators at the grass roots level that although inflation is very inconvenient and unpleasant it is not as bad as all that, and that inflation is certainly not as bad as deflation. That attitude of mind exists. I understand the reasons for it, but I think we must do our best to eradicate it. I suggest that my right hon. Friends make use of every opportunity, not only in national speeches— although my right hon. Friend made a marvellous speech during his recent party political broadcast—but at the shop floor and trade union level to ram home the lesson that inflation robs the poor and benefits the strong and that its effects are totally contrary to the whole philosophy of democratic Socialism.
But preaching is not enough. We must somehow take the people of this country by the scruff of the neck and show them that we are facing a crisis. I believe that some extraordinary measures are essential to bring that fact home.
Let me give one example. The Chancellor of the Exchequer made a profound mistake when he tried to promote conservation of oil supplies by means of raising prices rather than by means of rationing. I know the economic arguments in favour of raising oil prices, and they are very powerful in some ways, but they ignore psychological realities. When we raise the price of petrol to the consumer he grumbles and complains, and may even cut his consumption for a week or two, but before long he has absorbed the price

increase and is simply pressing for a higher money income to compensate. If we want to show people that there is a crisis, the way to have done so would have been by physical rationing rather than by rationing by price.

Mr. Atkinson: Does not my hon. Friend agree that price control has the same effect, since wages are rising faster than, or as fast as, the cost of living.

Mr. Marquand: I do not think that my hon. Friend has grasped my point. It is that the people of this country do not realise how serious the crisis is. Some dramatic action must be taken by the Government to bring this home, and I think that the rationing of petrol would have been a useful start.
Another suggestion is one which was originally made, I think, by the right hon. Member for Orkney and Shetland (Mr. Grimond). I shall take my ideas, if they are good ones, from any source. The Government should give serious thought to cutting the remuneration of the highly paid members of our society. There should be direct cuts made in high incomes. I am delighted that the Secretary of State for Employment has referred the question of high incomes to the Royal Commission. I am delighted that the Royal Commission has been set up. Let us now go further and make exemplary cuts in the incomes of the highest paid. I can think of nothing which would do more to a ram home the fact of the crisis
I also believe—if this suggestion is not considered treasonable—that the Royal Family have a part to play. A constructive and valuable measure would be for the Royal Family to make a voluntary sacrifice of a dramatic kind, which would show the people that they took the situation seriously. That, too, would help to create the right psychological atmosphere.
However, I do not think that psychological warfare, if I can call it that, is any longer enough. We also need to toughen up the institutional framework of the social contract. The National Institute is right in saying that to operate a social contract in the way it is now being operated, whereby the negotiators themselves have to decide whether or not a given claim is or is not within the guidelines, imposes an intolerable burden


on the negotiators concerned. Trade unions are formed to protect the living standards of their members. They have a duty to the wider society, of course, and in many cases they have responded to that duty. The fact remains that their primary purpose is to protect the living standards of their own members. It is asking an enormous amount of trade union negotiators to expect them to act as instruments of Government policy. There must be an impartial board or body of some kind which can say whether or not particular claims fall within the guidelines. Such a body would also make clear what the guidelines actually are and what they are supposed to achieve. I can see no objections to that.
Some of my right hon. and hon. Friends would probably say that this suggestion would be the thin end of a wedge leading back to the horrors of a statutory policy. Some might add that such a step would be seen by the trade unions as the thin end of the wedge and that it would therefore encourage the sort of claims that we want to discourage.
But what is the alternative? I am confident that the alternative is that the forecasts of the National Institute will prove to be true and may even be exceeded. That is far less acceptable than what I am suggesting and is contrary to everything for which the Labour Party and movement have always stood.

Mr. Atkinson: On the question of wages, there is no doubt or ambiguity about the statement made by many trade unionists and the TUC statement concerning the guidelines, which said clearly that wage negotiators should bear in mind the national situation and should not go beyond maintaining the living standards of those they represent. If my hon. Friend wishes to go further and is now saying that somebody should judge wage negotiations against that criterion, he is thinking of giving sanction powers to that body, which is what the trade unions are opposed to.

Mr. Marquand: I am not asking for that. I am saying that an independent body, representing the community and both sides of industry, is in a better position than negotiators themselves can possibly be to know whether the guide-

lines are being applied at a given moment, and in a much better position to set out in objective terms what the guidelines are supposed to achieve, so that the rest of us may know whether the policy is working.
This is not a departure from the concept of a voluntary policy. I believe in the idea of the social contract and in a voluntary incomes policy. No one in his senses would want deliberately to go back to a statutory policy. No one in his senses would prefer all the rigidities and difficulties that that involves. One of the weaknesses in the speech of the right hon. Member for Devon, North was that he did not admit that there were difficulties in a statutory policy and say how he would deal with the problems which would arise from one phase to the next.
If I were to be presented with a choice between the collapse of the social contract, with resulting mass unemployment, and a return to a statutory policy, with all its disadvantages, I should opt for a return to a statutory policy—and so, I think, would the Labour Party in general. What I call for now, however, is a last effort to make the social contract work. The ideas which I have tried to throw out represent, in my view, the last chance of making it work. My right hon. Friend the Secretary of State for Employment has probably put more into this policy than anyone else. He carries a tremendous responsibility to make it work and to bring its requirements home to people at every level.

Mr. Foot: I have listened with great care to all that my hon. Friend has said. But one disadvantage of what he is now saying—the same is true of the speech of the right hon. Member for Devon, North (Mr. Thorpe)—is that a return to a statutory policy creates difficulties in the meantime. I say again that I am bitterly opposed to any return to a statutory policy. That is Government policy. I hope that it will be understood, and I hope that my hon. Friend, despite his right to make his comments, will understand that there are dangers in presenting the case as he has done.

Mr. Marquand: Perhaps my right hon. Friend will take this point. I have heard that argument before. I heard it when I first came to this House in 1966 and again in 1967, about devaluation. I was one of those, as was my right hon. Friend,


who argued for devaluation in spite of all the objections to putting the argument publicly because we thought it to be necessary. I realise the responsibilities in relation to incomes policy and I did not say what I said lightly. But I believe that, in the end, each of us has an obligation to say what he feels to be right— and I know that my right hon. Friend does not want to prevent me from doing that. And if I may say so, the trade union negotiators, whose reactions my right hon. Friend is worried about, can read the National Institute report and see the facts themselves. They know what is happening just as much as the rest of us do.

6.24 p.m.

Mr. Edward du Cann: For myself, I cannot say I am sorry that 1974 is coming to an end. The Chancellor of the Exchequer said, in what I thought was a profoundly disappointing speech, that this had been a difficult year. The right hon. Member for Devon, North (Mr. Thorpe) was much nearer the mark when he said that he thought it had been disappointing. We have made too little progress in the effective management of our affairs. That may be thought to be a matter for regret. I say that it is a matter for shame on the part of this House of Commons.
In what I know everyone will say was a fine and courageous speech, the hon. Member for Ashfield (Mr. Marquand) said that we were suffering an economic and financial crisis of the greatest magnitude. That is true, and I am sure that it is right that, like him, we should not endeavour to meet the situation with party dogma but, rather, by saying plainly that our concern is for our country and for the future of our children. That is the priority, and nothing else should be.
The situation is most severe—there is no lack of evidence of that—and my right hon. Friend the Leader of the Opposition said that it was deteriorating. I am sure that it is right that we in this House should warn. We have a duty to do that.
However, my theme is a different one. It is that much public discussion at present is misdirected. We should look to the causes rather than to the symptoms of what is wrong. So I speak hopefully of remedies rather than indulging in the current petty fashion of constant carping cynicism and complaint which seems to

occur so frequently in dinner table and other conversations. I have no sympathy with what may be called, listening to the wireless in the morning, the gloom-and-doom brigade.
Thus I do not ask whether the strength of our people is adequate for the tasks facing the nation and moan that they are not. I prefer to think of ways to refresh or renew the resolution which lies untapped or too little tapped in our people. The needs are to stimulate, maintain and develop the national will to succeed and to give the leadership by which it can be achieved.
What is to be done in practical terms? We live in a practical world, and we should speak in practical language. Our overriding problems, of many, are inflation and the balance of payments. Like the right hon. Member for Devon, North and the hon. Member for Ashfield, I have some proposals to put forward which in conjunction could affect both beneficially.
I was flattered to hear that the Chancellor of the Exchequer had read the article which I wrote last Sunday in the News of the World. It was probably better reading for him than the stuff which must be served up to him constantly. I shall endeavour to amplify some of the remarks that I made in that article.
First, cannot we construct a comprehensive programme to save energy? What has been suggested to date is hardly impressive. Nor is there evidence of a determined search for or encouragement of the exploitation of alternative sources of supply. I give some instances. So far as I am aware—and I have made inquiries—there is little or no research into the possibility of methane production from farm waste. There is little research into the uses of solar energy. There is still less research into the uses of the wind for electricity generation.
Another matter referred to by my right hon. Friend the Leader of the Opposition concerned the development of our resources. It seems to me that the Government are much more interested in taxation than in production. Looking at the financing of North Sea oil exploration and how far it has got, I am bound to say that it is too slow and exists far too little. What I argue for—and this is one aspect of it—is a credible programme of self-help. I see no sign of that at present.
Second, the Government should mount an import-saving drive. I do not mean that I am in any way an enemy of a liberal trade policy. I remember well that UNCTAD conference in 1964 to which my right hon. Friend the Leader of the Opposition referred. He and I were colleagues in government at that time. I am much in favour of broadening the basis of trade throughout the world.
I object strongly to imports which enter the United Kingdom because we are careless, idle or wasteful. For example, for every ton of paper that we recycle we save importing a ton of pulp. Surely that is obvious. We can look at the bill. The figures are there for all to see. Yet my local authority has now stopped waste paper collection. Meantime, United Kingdom imports, to quote a single figure, constitute 20,000 tons of waste paper per month. That is nothing short of scandalous. I understand that there is now a danger that some waste paper merchants, at any rate in the West Country, will go out of business. This state of affairs seems so extraordinary that it is hardly credible.
In the United States the recycling industry—paper, steel, iron, plastics, and so on —enjoys a system of special tax relief. In Holland, the Government finance the stockpiling of waste materials for future recycling.
Surely, with imagination, it should be possible to mobilise public enthusiasm for this cause. The hon. Member for Ashfield was entirely right to point out that the public is largely unheeding of our cries of "Wolf" at present. I suggest that we should let that imaginative programme be done, and be done at once. These may appear to be small matters, but I say that in the aggregate they are substantial in terms of cash contribution to the balance of payments.
Even more important is the psychological effect of these matters. It is right that we should endeavour to promote public awareness of the dangers that we face, and the consequence of failure. Many people in our society have taken prosperity for granted for far too long. Indeed, one must be well over 40 years of age to have experienced anything other than a comfortable life. It is urgent to

mobilise public enthusiasm to counter those dangers.
I turn now to larger matters. I would pick up the theme of my right hon. Friend the Member for Finchley (Mrs. Thatcher) in the excellent speech that she made at the opening of yesterday's debate. My right hon. Friend was, in effect, saying that we depend for our very life and livelihood on commercial success. Can we not agree between us to remove the discouragements to commercial success which politics seem constantly to impose? In one way they are practical—the kind of discouragements that we hear every small business and saver in the country speak about. It would not be difficult to remove them.
The discouragements are also political. It is urgent that we remove from industry, commerce, insurance, shipbuilding, steel—I could give a longer list— the threat, if not the reality, of political interference of the gravest kind.
I thought that my hon. Friend the Member for Bridgwater (Mr. King) did the House a service when he interrupted the Chancellor and asked how he thought industry and commerce could sincerely believe that the Government have their best interests at heart when we still have in the Government the right hon. Member for Bristol, South-East (Mr. Benn). There could be no greater improvement in confidence than to see changes in certain Departments at this time. We need more practical success and less intellectual dog-fighting over industry. Could we not agree to a 10-year moratorium from political pressures on industry? Why cannot we leave industry well alone to do the job that it is supremely qualified to do?
I now turn to the fourth point that I should like to make. On this subject particularly—the social contract—I found the Chancellor hardly inspiring, let alone convincing. My view about the social contract is simply described. I hope to see it succeed. Manifestly it is not succeeding. It must have stronger backing.
I do not argue for a freeze for anyone, least of all for senior executives who so often seem to be a target of one kind and another, but excessive settlements must be brought under better control. There are various possibilities, as the House knows. The right hon. Member for Devon, North


referred again today to the possibility of taxes on higher percentage increases. That is one possibility. Indexing, which I favour, is another. But there is a need to remove uncertainty from people at the lower levels of remuneration, and especially the continual scrapping to which this country is now subject. We also need to encourage greater emphasis on increased earnings through increased production or productivity.
We are doing none of these things. We are not handling satisfactorily any of the matters with which we should be coping. For the Government to pretend that the social contract, as it exists, is ideal, is patently absurd. It requires amendment, and soon, if the prevailing mood of cynicism about it is not to grow to an extent which will inevitably destroy it.
Fifth and last in my list, I would write a new industrial charter. It should be easy to write an obligation to bring about a greater degree of consultation in industry and commerce. The strategy of a business should not be the exclusive prerogative of the boardroom. Equally, its profitability is highly relevant to the work force. Industry is a partnership, not a battleground. Let us promote unity in industry by every available legislative device for consultation, for directorships, if people wish to have them, for profit sharing—heavens, if the French can do it, why cannot we?—and for share ownership, a matter in which I have long taken a personal interest. These and other devices are readily to hand. I am sure that they provide a vastly better recipe for industrial harmony than all the apparent delights of State ownership.
My list of five points is by no means exhaustive. Other right hon. and hon. Members will have many proposals to make involving such matters, perhaps, as the restoration of confidence in markets —so very much needed—and better control of Government and local authority expenditure. Whatever the Chancellor may have said, neither local government nor central Government expenditure is under control. I am as certain as I am standing here—I speak as a past Chairman of the Public Accounts Committee and as the first Chairman of the Public Expenditure Committee—that it would be possible to get vastly better value for money than we currently do.
Other right hon. and hon. Members will wish to talk about the regeneration of industries—for example, the construction industry, which, in the South-West at any rate, is having a miserable time—or the deficit financing which we are enjoying, if "enjoying" is the right word.
Returning to the general, I was extremely pleased that my right hon. Friend the Leader of the Opposition this afternoon spoke about support for the Government for every proposal where common sense and patriotism are the sponsors. I endorse that approach. We on the Opposition side of the House should and shall, I believe, always support the Government in such circumstances, not least the Chancellor's efforts to counter on a world scale the imbalances which result from the sudden increase in oil prices to which he referred.
I should like to make a supporting proposal. I suggest that the Chancellor should mobilise the support of the developing world, not least in Africa. It is true, as many speakers have remarked in the past, and will again, that to a large extent the balance of power in the world is changing. The sufferings of some of the developing countries are great, and they need help, and they could well support us in the councils of the world.
Some of us welcome the Chancellor's Budget as a step in the right direction of liberating industry from the shackles that he previously imposed upon it. Of all the examples that one might quote, I suppose that the most important discussions that we shall enjoy—again, if that is the right word—in 1975 in this House will be those about the European Economic Community.
I was an opponent of our country's entry into the Community. I thought then that there were better alternatives, and I still think that. I have never seen any reason to change my opinion, but, the House having made a democratic decision, we should now work for success in Europe and try to shape its destiny as we believe to be right. If we succeed, well and good. If we do not, then will be the time again to consider the alternatives. Meantime, let enthusiasm be in order. What we need above all—I am trying to say this by means of illustration— is certainty in what we do.
I return to my main theme. It is within the knowledge of many hon. Members that, lately, I have seen something of many whom I am pleased to regard as personal friends in both Africa and the Gulf, notably in Kuwait. They all seem to say much the same thing to me, and I dare say, to other right hon. and hon. Members from time to time. I can summarise it like this: "We who have confidence in you and your nation beg you to have equal confidence in yourselves". I would pray, so let it be.
It is true to say that this country is at a crossroads, but the reality is that our destiny is in our own hands. I just hope that in 1975 we are more worthy of it than we have been this year.

6.41 p.m.

Mr. Norman Atkinson: The right hon. Member for Taunton (Mr. du Cann) will not be surprised if I do not share his laissez-faire attitudes or agree with his remedies. In fact, it was somewhat odd to hear him say that there were faults within the existing system and then go on to say that it should be left alone and we should preserve it, as though the debate was being held as a result of the success of the system rather than as a means of discovering how we can remedy its failures. It is odd that someone should want to protect something that has failed the nation, so I make no apologies for being a political interventionist and putting a Socialist point of view. I believe that it is by a planned economy that we shall find a remedy for the problems facing us.
I want to set out the Socialist case and argue for greater intervention, a planned economy, and free wage bargaining within that set up. I believe that that is not a contradiction in terms but that, on the contrary, the two things go together. In fact, one depends upon the other.
I want to comment first on some of the things that were referred to by the Leader of the Opposition and then to take up some of the other arguments that have been advanced today about investment, about the need for import controls and, finally, about wages and prices.
I take up first the point made by my hon. Friend the Member for Ashfield (Mr. Marquand). If the National Institute is

correct in its prediction of a 25 per cent. rise in the retail price index, and if that is wage-led, it must of necessity mean an average increase of 35 per cent. as a result of present wage negotiations, but on the basis of our recent experience I do not think that even my hon. Friend would suggest that wage bargainers are getting anything like that average increase. In fact, some wage bargains are not keeping up with the rise in the retail price index, with the result that in terms of take-home pay some people will suffer a reduction in their living standards in the months ahead.
We were all sadly disappointed in the Chancellor's speech. He gave us a survey in trivia. That is to be regretted, because it demonstrates the attitude of those who believe in some kind of elitism. They do not think it is necessary to present to the House a solid and well thought out argument in order to convince Parliament and take Parliament along with them. They take it for granted that the party system guarantees them support in advance of any arguments they advance. It is an insult when they give us a half-hour lecture of the kind that we heard today, and deal in trivia. I am sorry that my right hon. Friend is not here, because if he were I should have even more pertinent things to say to him.
As the Leader of the Opposition said, we have a mixed economy. It is mixed to the tune of 25 per cent. public sector and 75 per cent. privately owned. Therefore, the predominant ethics against which we must judge the situation are the ethics and ideas of a free market economy, and it is with those ideas in mind that I propose to make my remarks.
Again, as the Leader of the Opposition said, fundamental changes are taking place in Western capitalism. These are structural changes that we can identify and see clearly. Incidentally, some of these structural changes are beginning to expose fundamental defects in the system. That is why some of us say that whatever remedial measures are taken by the Government must be judged against the criterion of change. If we are to think of unity in our party, it must be made clear that whatever remedial measures are taken recognise the need for change within society and are aimed at bringing about a shift of power in accordance with the principles which we believe should be


found within the Labour Government. That is one reason why we criticised the Finance for Industry bank. That was the basis for a long controversy about the Lever arrangement, and why we said that the whole purpose of our policy should be concentrated upon the immediate creation of a National Enterprise Board.
Another important aspect of the matter is the clear relationship between cost inflation and the structural changes to which I have referred. We all recognise that the old entrepreneurial characteristics of the system have gone and that what we are now seeing is capital intensification and a regrouping of small enterprises into larger groups. Secondly, we are seeing the internationalisation of manufacturing processes and the introduction of international commodity pricing policy. The two things go together. They are interrelated, and it is important to understand why that is so.
It is no accident that multinational manufacturing concerns are dominating the scene and that we see coming into being international agreements on pricing policies for the supply of commodities. Here I refer to three areas in particular which demonstrate clearly what I am saying. One organisation is OPEC, which comprises the petroleum producers, another comprises the copper-exporting countries, and yet another organisation represents the bauxite-producing countries. All those organisations are undertaking for commodity-producing countries what the multinational companies have done for Western capitalism. These matters are interrelated, and it is no accident.
Again, it is no accident that as a result of those structural changes in Western capitalism, one of the largest contributory factors in the inflationary process has come from the supply of basic commodities and the under-utilisation of the extra capacity which the merging of smaller enterprises has created. Those are two major reasons why we are now suffering the sort of inflation through which we are passing and why there are problems in the Western world such as those which have been outlined in this debate.
Let me make one final point about capital intensification and some of the difficulties which arise from the merging

of smaller enterprises. That process, in itself, does not guarantee a growth in market potential. We have come to recognise that where a multinational structure has been established without an increase in market capacity, the problem of under-utilisation is very real. The nature of the capital intensification that is brought about brings with it an inflationary trend. The whole shift away from labour intensification has been a major contributory factor.
The question of investment is uppermost in our minds and is one of the essential ingredients of our ideas concerning planning agreements. We are probably in for one of the worst investment recessions we have seen in post-war years, and possibly this century. It has not been a good record, and those of us with any knowledge of the machine tool industry have seen a practical demonstration of the inadequacy of the investment method, culminating in the inability of the system to generate the sort of investment which we continually need to allow us to move towards any improvement of our living standards.
When we consider that the major part of our economy is still in private hands, that there is no strategy to control investment policies, and that each individual enterprise takes its own investment decisions, we can see that there is an absolute need for some sort of planned agreement by a Government concerned about the well being of our nation to intervene in the system so that the whole business may be orchestrated. We have argued as strongly as we can for the creation of a National Enterprise Board and for a strengthened prices board in bringing about the orchestration which we believe to be so necessary.
We believe that in the present situation private investment should be conscripted in the national interest. We do not believe that individuals or individual companies should have complete freedom in terms of investment policy. We believe that in regard to the restricted resources which have been illustrated in this debate the Government should intervene. They should ensure that whatever the investment taking place and whatever the allocation of resources, they should not be handled on the basis of individual decisions taken in various boardrooms. These


decisions should be made centrally by the Government, so that we can ensure that the allocation of resources accords with the national need and not with the investment policies of some independent firm.
It was in this sense that I intervened in the speech of the Leader of the Opposition to comment on the irrelevancy of the Stock Exchange. It is true that, last year, the only fresh issues raised on the Stock Exchange amounted to a sum of £135 million. That figure is irrelevant in the present situation. The Stock Exchange is not now a serious source of new capital investment in this country; it has ceased to fulfil its original function. Not only has the system changed, but the purpose of the Stock Exchange also has changed. A total of 60 per cent. of investment is being raised by individual companies and this strengthens our arguments for a planned strategy for investment.
I should like to deal with the question of overseas trade and the need for planning agreements. I believe that there is now a case for the imposition of import controls. Many Labour Members are determined to campaign for the creation of such controls because we do not believe we can solve many of the major problems that face us within the economy unless we have some sort of planned arrangement over those commodities which are freely imported into the United Kingdom.
The Chancellor of the Exchequer recently said that it would be wrong to interfere with the freedom of importers and that any action on those lines would only add to world recession. I believe the opposite is true. If we accept the conventional view of the Treasury when there are balance of payments difficulties, the remedial measures involve deflating the economy and reducing demand levels domestically to correct our external trade. If that is to happen, surely the Chancellor of the Exchequer is ignoring remedies which he has long advocated. Rather than the imposition of import controls having a recessionary effect, surely the reverse is true. When we have run into balance of payments difficulties the Treasury, backed by successive Chancellors of the Exchequer, has cut back on our demand levels. Therefore, if we take

the view that we should have planned arrangements for imports, we can go for growth domestically rather than the other way round. When the situation is left to conventional Treasury methods, the practice has been to bring about a deliberate deflation of the economy because of the imbalance overseas. If we can bring about some planned order in terms of external trade, we can then begin to boost the economy and bring about a growth rate which we have not known in the last 20 years.

Mr. Donald Stewart: The hon. Gentleman has emphasised his view that there should be a cut in imports. That argument may be superficially attractive, but does he not agree that other Governments may take unilateral action? If we say that we are cutting back imports from country A by an amount of £50 million, will it not immediately take retaliatory measures?

Mr. Atkinson: It may do so, but with the deficit which we now face any retaliatory action would be in our favour.

Mr. Marquand: How?

Mr. Atkinson: Perhaps I may answer my hon. Friend the Member for Ashfield by giving an illustration. If we are so deeply in deficit that some country wishes to take retaliatory action, that country will start cutting back on its exports to this country. If it wants to see a growth in world trade and flourishing domestic economies, it must seek a higher growth rate all round and must recognise the sense of trying to obtain some sort of planned balance in world trade, rather than leaving it to each country to make its own arrangements.
I think that the argument is in favour of import regulation if we are talking about a growth in world effort. If we want to avoid some of the problems caused by the imposition of the conventional policies pursued by the Treasury, there is no alternative but to introduce some degree of planning into our external trade. We go further, and say that there must be a severance of external trade arrangements from the management of our domestic economy. The one should not depend upon the other. It is ludicrous to try to get an external balance on the basis of


deflating our domestic arrangements. The one is contradictory of the other. Of necessity, there must be some planning.
I turn now to the question of free wage bargaining and some of the things that have happened in our experience of price regulation. It is exactly two years since price regulation was brought about. Since then, we have seen two or three changes, most notably getting rid of wage control on 25th July this year. We are at the end of phase 3, and we can look, with a judge's advocacy, as it were, at what has happened during the phase 3 period.
The Leader of the Opposition seems to have forgotten that the figure of 18·3 per cent. now given as the price rise was up to that phenomenal level over the period of phase 3 and price regulation. We do not know what precise effect price regulation has had on the index, but from what statistical information is available to us it would seem that there is an argument that about 3½ per cent. is being suffered as a result of that policy. There is possibly no way of knowing for certain. All we can say is that during the phase 3 period there have been price increases of 22½ per cent., which, reduced by 3½ per cent., brings the figure down to that which has been given to us as a result of the abolition of price control.
I come back to the comments that the Labour Opposition made when the Conservative Government introduced the price arrangements. We said, in the famous words of one of my hon. Friends, that it was a bureaucratic entanglement. That I still believe. When the TUC and certain unions talk about a permanent system of price regulation, they are not talking about making permanent the system we have seen in operation—far from it. They are talking of a very different system indeed. The present system cannot distinguish between the various sizes of companies which have to operate within it. The criteria apply right across the board, by and large, apart from certain productivity variations, and so on. The system's weakness, therefore, in having largely the same criteria, will mitigate against our use of planning agreements.
We go further. If the Government are serious about the introduction of planning agreements and the establishment of the National Enterprise Board, we can-

not continue with a system of price regulation of the kind we now see because the two things will not work together. Therefore, we say that there must be fundamental changes in the whole business of price control if we are to have planning agreements of the kind we envisage.
I come back to the point that the remedial measures must be directed towards the whole process of social change. It is at the heart of the social contract when we say that we must have a much more simplified system of price regulation. We believe that if wage negotiators are to be allowed freely to negotiate against price ceilings, but those price ceilings cannot be established by the mechanism outlined in the price regulation policy, we have to have a completely new system of price ceiling arrangements if we are to succeed in the whole business of freely negotiating wages against fixed maxima. This is of absolute importance.
Let us judge the question of the coal industry negotiations going on today. The National Union of Mineworkers, the Government and the National Coal Board should now be talking about the price of coal and not the whole business of a wage agreement within it. We believe that it is part of the union's responsibility to present to the country what it believes the price of coal should be. It has a shared responsibility in that. Therefore, our approach is to look at price first, then to achieve the various elements within the price, where they belong and where they can be negotiated.
We think that in this situation, because of its seriousness, there must be an almost revolutionary approach to the whole business of trying to save the situation by allowing wage negotiators a complete freedom, because we think that the wage negotiator also has a responsibility— which is to allocate the resources of the country in accordance with our criteria and our priorities, and not those of the normal price mechanism.

Mr. Daniel Awdry: The hon. Gentleman keeps using the expressions, "We believe", "We think". Who are "we" in this context?

Mr. Lamont: On a point of order, Mr. Speaker. Have you any guidance to


give hon. Members about the length of time they should speak?

Mr. Speaker: My guidance is that I hope that all speeches will be as short as they can be.

Mr. Atkinson: I am trying to be as brief as I can, Mr. Speaker, in setting out the case as I see it.

Mr. Lamont: Twenty-five minutes.

Mr. Atkinson: I believe that I am about to take the same amount of time as my hon. Friend the Member for Ash-field did. I think that is a reasonable proposition.

Mr. Speaker: I can help the hon. Gentleman. The hon. Member for Ash-field (Mr. Marquand) took 18 minutes.

Mr. Atkinson: I return to the question of the important matter of free wage bargaining against price maxima. In order to obtain the sort of policy we envisage, we see many aspects that need changing, and I was hoping to spell out one or two more illustrations dealing with some of these things being talked about —involving the food processes, for example. Perhaps that is for another time. I accept that perhaps this is not the time to have a serious discussion about some of these problems. Perhaps we should ignore them. But I notice, Mr. Speaker, that some of your strictures and those of others do not apply to hon. Members who seem to speak pretty frequently. This happens to be my first intervention in this Parliament. I cannot apologise to anyone for the time I am taking when I consider the amount of time which some hon. Members opposite take very frequently.

Mr. Speaker: Order. Perhaps I should explain to the hon. Gentleman that I have a list of about eight hon. Members on the Opposition side who wish to speak in the debate and who have not yet spoken in this Parliament either.

Mr. Atkinson: In that case, Mr. Speaker, I shall sit down and allow my case to rest, hoping that I have at least stirred the imagination of some hon. Members, or have alerted them to the fact that we are serious about our demands for changes in these three areas.
First, we believe that there is now an absolute necessity to go for a much

greater degree of Government intervention in the economy, to go for as much planning as we can, particularly of a physical kind, to intervene physically in the economy, to try to reduce to a minimum the influence of the free market system, and to do so first of all in the whole area of investment.
Secondly, we believe that we must introduce a system of import controls in order that we can get the kind of balance that we require. Thirdly, we believe that we must start to reconstruct the whole business of price regulation in order that we can ensure a fair redistribution of the wealth we produce and —probably equally as important—ensure also that wage bargainers can freely negotiate against price ceilings, and by this means make a serious contribution towards bringing down the galloping inflation rate from which we suffer at the moment.

7.10 p.m.

Mr. John Biffen: There is, in all parts of the House, a mood of deep apprehension about the current state of the economy and the inflationary prospects. As a result, almost every hon. Member has been prepared to regale us with a litany of disasters, either actual or impending. I thought that that mood was affronted by the manner in which the Chancellor responded to the speech of the Leader of the Opposition. Although the hon. Member for Tottenham (Mr. Atkinson) has drawn a handful of strictures from some of my hon. Friends, there will be widespread acquiescence with his point about the unsuitability of the way in which the Chancellor treated this debate.
In a situation of inflationary flux, when institutions come under question, we would be well advised to take account of what hon. Members like the hon. Member for Tottenham think, because he knows what he wants done in this situation. It is as well that those views, which are widely entertained in certain sections of the trade union movement, are also expressed and taken into account in this House.
I want to confine myself, partly because many hon. Members wish to speak on these occasions, to one aspect of the economy which is central to all our discourse and which was touched upon by


my right hon. Friend the Leader of the Opposition—namely, the tremendous size of the public sector deficit, which, for the current year, has been running at £6,300 million, or, as I prefer to put it, at a rate of £2·50 per man, woman and child per week.
As this is a ranging shot of a debate before the Budget in March or April, we have to ask ourselves whether we dare contemplate that kind of deficit being perpetuated for a further year. The answer must be "No". It carries profound inflationary consequences. I was encouraged to see that the Financial Times, in an editorial on 16th December
Now we are seeing supposedly tight monetary policies offset by indisputably weak fiscal ones.
I shall turn further to that in a moment.
There is one particular reason for the deep anxiety about that deficit—not merely on account of its size but on account of one of the major means which has been used to finance it—namely, recourse to oriental capital. The anxiety is that that source—that vital contribution to the Chancellor's arithmetic—is politically precarious. There would be few in this House, certainly on these benches, who would not feel an uneasy instinct that, at some time in the next six months or so, there will be a preemptive strike by Israel as a means of protecting her position in the Middle East. I pass no judgment on the virtue or otherwise of such action by the Israelis, but this is a calculation which we have to take into account, because the consequences for this country and for its domestic financing arrangements would, in my view, be significant and severe indeed.
Second, if our domestic policies are being financed by borrowing from abroad on such a large scale, ultimately—I think in the not-too-distant future—the whole means becomes an affront to our sense of self-respect. If we are unable properly and adequately to finance what we wish to do from our own resources, we shall find, over time, that we put into pawn not merely our foreign policy but our domestic policy as well.
Therefore, there is a widespread belief, a widespread wish—not confined to these benches, I suspect—that the Chancellor should proceed with a stabilisation programme. If we are to make a con-

structive contribution to this debate, we cannot leave these topics hung in mid-air, in cliché and generality. We have to be prepared to indicate just how we should like to see the Chancellor set about his stabilisation programme. Therefore, I do not apologise for the fact that I intend to indicate one or two areas where I believe that he should act as expeditiously as he can, although I realise that the Budget is probably the most appropriate occasion for such action.
First, I make no apology for recommending to the House again that there should be a speedy diminution in the size of the food subsidies bill.

Mr. Patrick Cormack: Hear, hear.

Mr. Biffen: I am glad to have the throaty agreement of my hon. Friend. I assure him that he is in distinguished company, because I read in "Redistribution: A Review of Progress", by Mr. John Mills on behalf of the Labour Economic, Finance and Taxation Association that
The main danger from inflation is … that the Government may use the limited taxable capacity of the country to fight inflation with general subsidies
That is a conclusion, coming from the Labour Party, with which, in this spirit of national unity we should all be happy to agree.
When we are looking for areas of retrenchment in public sector spending, few of us will agitate for further cuts in social service expenditure or education in the light of retrenchment already being undertaken at the behest of the previous Chancellor, now Lord Barber. Certainly my hon. Friends will not agitate for further cuts in defence expenditure. So we have to face some of the realities—and, in terms of expenditure, the overwhelming reality to which one is propelled is that underlined by the author of the pamphlet from which I have just quoted.
Confronted by so daunting a deficit, we should have to increase Excise duties. Again, in my anxiety to enlist support from various parts of the House, I have heard with approbation the remarks of the hon. Member for Meriden (Mr. Tomlinson) who also feels that this particularly non-buoyant tax should be increased. I believe that that is so, and I would go further. I do not believe that


we can sensibly approach a significant diminution in the size of the public sector borrowing requirement without an increase in income tax.
There may be others who would prefer an increase in the value added tax. We can debate the advantages and disadvantages of whichever method is chosen, but one of the neglected parts of the Chancellor's speech in November was his hint that there would be a possible increase in income tax. I believe that it would be much better if we had a much clearer and more tangible idea of how the Chancellor wished to proceed in diminishing that enormous public sector borrowing requirement, because it cannot be done by stealth. The whole psychology of this policy will be undermined if the Chancellor believes that he can proceed without causing pain and hurt, for there will be a painful convalescence from the fever of inflation. I do not believe that there is any other way.
The quality of debate and the character of political decision are not assisted by the kind of remarks made by the Chief Secretary the other day, when he accused some of my hon. Friends of relishing certain levels of unemployment. My hon. Friend the Member for Blaby (Mr. Lawson) quite rightly objected to the debate being conducted in those terms. For what we ought to be doing, not in any concocted form of political national unity but out of a wider regard for what advantages one can seize from this fairly unhappy situation, is to see whether, as we return to reality, we can proceed to public debate which will be more happily conducted and more firmly rooted for the future than it has been in the past.
Heaven knows, it does not lie easily on my tongue to be an advocate of increased taxation, but that is what is immediately obliged by the present situation. I believe that once appropriate and honest levels of taxation are being levied there will be a much wider questioning of the vaulting ambitions of the Government. My right hon. Friend the Member for Taunton (Mr. du Cann) gave a very robust exposition of the virtues of free enterprise. Again, I should like to turn to Mr. Mills, the author of the Labour pamphlet to which

I have already referred. In one of his conclusions he says:
As personal taxation in Britain is already high there is therefore a strong presupposition that any increase in government income and expenditure will be regressive. In these circumstances the proposition that increased public expenditure has a general tendency to lead to a more equal society is a dangerous fallacy.
Therefore, I hope that out of our present agonies we can proceed to a situation in which political debate can be about the size of public sector spending, how the revenues are raised, and to what purposes they are put. That would be a valuable and constructive area of dissent and would contrast very favourably with so much of our recent sterile political argumentation over the lines of economic growth and the virtues of size.
But there is a second advantage which can be gained from our present unhappy situation. That is that as public sector finance is freed from overseas borrowing, so we have a chance for a restoration of self-respect, which is the indispensable prelude to a restoration of national self-confidence. For I truly believe that we are mesmerised by fear. I think that the impact of inflation brings about precisely the situation which was outlined by the hon. Member for Ashfield (Mr. Marquand), in which there is one level of perception in the House and among opinion formers, perhaps, of deep anxiety, and one of profound apathy on the part of the general public.
But it is an extraordinary condemnation of us and of this institution if we have been unable to convey to those whom we serve what are the underlying realities of our situation. I believe that the English sickness, if such there is, is centred at Westminster more than anywhere else, for I believe that we demonstrate all too little faith in our own institutions and that we show all too little confidence in the innate manufacturing skills and commercial arts of those whom we are privileged to represent.
I hope that from the analysis I have made and from the course of action I have suggested—which makes this contribution, perhaps, a little more distinctive than some others—we can proceed to this happier situation. I say to my hon. Friends, and particularly to those from


England, that if we cannot recreate a sense of patriotism and a sense of success in the United Kingdom, the union itself will be at risk. I do not say that light-heartedly in the presence of the hon. Member for Banff (Mr. Watt) and his hon. Friend the Member for Western Isles (Mr. Stewart).
I have no doubt that the more that we reflect on our own shortcomings and fears, the more may people in some component parts of the United Kingdom think that they can restore to themselves the traditions of nationhood. That will be part of a wider debate to which the House must attend no less than to economics. For the question of the union will not be resolved entirely in terms of economics. That is why, in the extrication of ourselves from our present dilemmas, the language of economics is not enough. I hope, therefore, that in the time that is available, which is short, a sense of meaningful patriotism and direction will be injected into our economic policy.

7.26 p.m.

Mr. Donald Stewart: I was greatly impressed by the realism in the concluding remarks of the hon. Member for Oswestry (Mr. Biffen). If I may say so, as a Scot, it is something which English Members ought to regard very seriously.
The problem of the United Kingdom is a problem largely confined to England. However, four nations are concerned in the United Kingdom at present, and we must face the facts as they are. When my hon. Friends and I advocate that Scotland should have self-government, we do so not arguing that we ought to leave a sinking ship. We of the Scottish National Party argued this case in the days before we knew that there was a single spoonful of oil under the North Sea, and in the days when England was a prosperous country and when Scotland and Wales were apparently poor countries. We advocated this purely on the ground of nationhood—the ground which the hon. Member for Oswestry said ought to be applied to England as well.
As I listened to the Leader of the Opposition and to the Prime Minister today I could not help thinking that whatever the country was short of, it was not short of cliches. The argument almost induced me to fall into the trap of talking

about pots calling kettles black, people in glasshouses not throwing stones, chickens coming home to roost, and all the rest. As has been mentioned in the debate, the country is fed up with the Conservative Party and the Labour Party trying to establish which bears the greater blame in this situation.
Is the country in danger of imminent collapse? The Government must come clean about that and tell the people. We sometimes hear scare stories before a Budget to the effect that a great tightening of the belt is due, but we then find—as with the last Budget—that the Budget is largely an anti-climax. The most serious aspect of the last Budget was the incerase in the price of petrol by about 10p a gallon. That is serious enough in many places, but it can hardly be described as a national crisis.
The Leader of the Opposition today asked the Government to tell the truth. I certainly back that request. However, I remember that less than a year ago, when the first signs of the economic catastrophe —if that is what it is—were on the horizon, the right hon. Gentleman was assuring hon. Members that the problems we were facing were the problems of success. The request to tell the truth, therefore, should apply right across the board.
The Government ought to take fundamental measures to ensure that agriculture is put on a sound footing. If there are hard times ahead—and I believe there are—any country that can feed its own people by means of its agriculture industry will be in a strong position.. The same applies to the fishing industry. I do not propose to go into details, because of lack of time, but both these industries are in need of help, and the Government should help, for the sake of those industries, the people in them, and the contribution made by those industries to the country's larder.
The problem of the Scottish steel industry is now coming to a head. When the industry was nationalised on a British basis many of us forecast that it would mean doom for the industry in Scotland. We had no great feelings one way or the other on the question whether the industry should be nationalised or should continue under private enterprise, but we were certain—we are now seeing it proved


—that the nationalisation of the industry on a British basis was the signing of its death warrant.
The Benson Report made clear that the Scottish steel industry was a separate entity, and since the British Steel Corporation adopted that report as its basic philosophy we should have gone all the way and kept the Scottish steel industry separate. The Scottish people are becoming aware of the plans to destroy the industry in Scotland—the proposals cannot be described in any other way. I warn the Government that if the proposals are permitted to go ahead there will be a whirlwind against which the row over teachers' pay and such things will appear merely as minor inconveniences.
The British Steel Corporation has an option on the land at Hunterston. Many of us believe that the corporation is holding that land for the purpose of what I would call sterilising it and keeping out any further developments. The Government should face the BSC with an ultimatum that it must produce plans for the development at Hunterston or let the land free for others to develop.
I shall now list the action that I think is needed. First, the Government should put the facts plainly before the people and should then end divisive measures. I do not say that a Government elected on a Labour or Socialist philosophy has no right to introduce Labour or Socialist policies; or course they have. But there are certain proposals that are divisive apart from their political content. I have in mind, for instance, the proposal to increase the cost of the national insurance stamp for the self-employed. Many self-employed people are fairly affluent, but many others are not. This seems to me to be a totally irrational and vicious proposal, and an indirect and dishonest way of collecting more income tax.
We should also have genuine cuts in defence—not the kind of charade we had on Monday night. I do not believe that the country would be one whit more at risk if substantial cuts were made in the defence programme. Most of the defence projects are a conspicuous waste, and add nothing whatever to the defence of the United Kingdom.
The Government should also take a look at overseas aid. I am in favour of overseas aid, but it ought to be on a selective basis. For instance, the Indian Government, despite the fact that there are millions of starving people in that country, have constructed a sophisticated bomb and are now in the big boys' league. I suggest that the Government should cut off overseas aid to India. If India, with its starving population, can afford to waste money on something as wicked at a bomb, we should ignore its begging bowl when it is held in front of us.
There should also be improvements in industrial relations. I know that it is easy to say this, but with the country in its present position more effort should be made in this respect by both sides. We have heard a lot about industrial strife in Scotland recently. Incidentally, it was curious how indifferent the Government in London were regarding this. One would almost have thought that Scottish government had arrived and that the Government in London had nothing whatever to do with the matter. There was no invitation to trade union leaders, or strikers, to have beer and sandwiches at Downing Street at midnight. It seemed to be a problem in which the London Government were not at all involved.
We should have some regard for the facts behind the claims made by people in industry. There are many substantial claims. We hear of the miners asking for an extra £30 a week. I believe that the miners have more right to a decent wage than most people, but if they get wages of the sort they are seeking they must realise that it will mean the cost of a bag of coal going up to perhap £1·50 or £2, and this will particularly hit old-age pensioners. I do not want to single out the miners. The effects of wage increases cannot be confined to particular industries. They spread throughout the economy.
The Government should say whether, in fact, we have a crisis and, if that is the case, they should get down to the measures needed to put the position right.

Mr. Deputy Speaker (Sir Myer Galpern): I remind the House that there are still 19 hon. Members anxious to take part in the debate. I do not know how


these Members can be accommodated, but I am sure that hon. Members do.

7.36 p.m.

Mr. Ian Gow: Despite some appearances to the contrary, the crisis facing Britain today is real. It was spelt out with unusual uniformity by the three main parties at the General Election. It has been recognised, almost ad nauseam, in all parts of the House. It is the constant refrain of the Prime Minister, of the Chancellor of the Exchequer and of my right hon. Friend the Leader of the Opposition, and yet those who sent us here have hardly begun to understand the gravity of the peril which we face.
For this I do not blame mainly, or even exclusively, the Government. The responsibility for the nation's well-being rests primarily with Parliament, by whose leave alone the Queen's Government can be carried on and which is still, in all the matters which we are debating today, sovereign and supreme. It is not open to any hon. Member of the House, just because he happens to sit on this side, to wring his hands and say, "My party is not in power. What can I do about it?" We are all in this together. That is why I want to start my speech by explaining what seems to me to be a fundamental unity shared, I would think, by almost every Member of the House.
Hon. Gentlemen opposite attach, rightly, great importance to their manifesto. On inflation their last manifesto said:
Britain faces its most dangerous crisis since the war. The first priority must be a determined attack on inflation.
The manifesto of my party was in almost identical terms:
The dangers now facing Britain are greater than any we have seen since the last war. Everything else is secondary to the battle against inflation and to helping those who have been wounded in it.
The Liberal Party manifesto stated:
The Government which takes office after the Election will face the greatest peace time crisis we have known since the dark days of 1931. This Election is being fought against the threat of economic disaster.
The quotations are interchangeable. Any of them might have appeared in either of the manifestos of the other two parties. More than 93 per cent. of those who voted at the last election supported

candidates of parties which were warning of imminent peril, but the warnings were simply not believed and are not believed to this day.
There are three main reasons for this phenomenon. First, inflation is not as deadly as the bullet and the bomb. The present crisis has been compared with the last war. Then, at least, the enemy was readily identifiable. He could be seen, heard and felt. By comparison, at least for the majority—and certainly not for the time being—inflation seems to be an abstract enemy, and to some a positive ally.
Second, we politicians have for too long been the handmaid, or even the midwife, of inflation. For us to condemn inflation is too like Satan rebuking sin.
Third—the most important factor of all, I believe—the people have come to learn, and too often with good reason, not to believe what politicians say.
So much for the diagnosis. Is there a cure? The medical analogy is not false. It is neither kind nor conducive to recovery to say to a man desperately ill, "Do not worry, old boy. A couple of Alka-Seltzers, and you will be feeling better in the morning". There are some grave illnesses which require prolonged treatment and on which there is a genuine difference of view among experts as to the treatment necessary and as to the timing of a change to a new prescription, but there would be agreement among all doctors on two points at least, that the object is to achieve a return to full health and vigour, and that the psychological will of the patient to recover is of enormous importance.
I take those two objectives in reverse order. The current psychology of winning the battle against inflation and restoring national solvency and self-respect is all wrong. Again, I do not blame the Government alone, or even mainly, for that. We on this side of the House, wherever we sit, must accept our fair share of the responsibility. But if we are to convince others of the need to take the crisis seriously, we must take it seriously and be seen to take it seriously ourselves.
In 1951, when the economic crisis, by common consent, was infinitely less grave than our crisis today, the then Prime Minister announced cuts in ministerial


salaries. Almost exactly 23 years ago, speaking from that Dispatch Box, he said:
We have thought it right to make certain reductions in ministerial salaries. They are not intended as a reproach upon the party opposite, but only as a signal which may be helpful for all… The reductions are intended to mark the emergency character of the period upon which we have entered. …"—[OFFICIAL REPORT, 6th November 1951; Vol. 493, c. 70.]
I underline the words,
a signal which may be helpful for all … to mark the emergency character of the period upon which we have entered.
That example should be followed now. There should be a 5 per cent. cut not just in ministerial salaries but in the salaries of Members of Parliament. The money saved would be the proverbial drop in the ocean, but the effect on morale and public confidence in the will of Parliament to set a lead would be profound.
The second psychological factor which we have neglected is the need to save energy. The measures announced by the Secretary of State on 9th December were nothing like severe enough. We should make a start by reducing the lighting and heating in this place and in the other place. The maximum heating level of 68 deg F in non-residential accommodation is far too high. It should be reduced by at least 10 per cent. Ministers and others should use "mini" rather than "maxi" cars.
So much for the psychology. I turn now to the medicine. It needs to be administered at once. We are living far beyond our means. We have been accustomed to be told that there will be no increase in our standard of living for the next two or three years. It would be nearer the truth to say that, while the Government have a special duty to protect the least well off sections of society, most of the rest of us will have a real reduction in our standard of living over the next few years.
In his Budget statement last month, the Chancellor of the Exchequer said that he regarded the public sector borrowing requirement of £6.300 million as being
a disturbingly large figure which one would never accept in normal circumstances".— [OFFICIAL REPORT, I2th November 1974; Vol 881, c. 279.]

The Chancellor of the Duchy of Lancaster, in the Budget debate, spoke of an "astronomical balance of payments deficit" and of the need to
run our own affairs in ways which do not discredit us abroad."—[OFFICIAL REPORT, 14th November 1974; Vol. 881, c. 600.]
Since then we have learned that inflation is running at an annual rate of 21 per cent., with the prospect of an even higher rate next year.
We cannot go on as we are. In the short term, we must bend the curve of public expenditure downwards, and that of taxation, especially on non-essentials and on imported luxuries, upwards. We must resist the temptation, to which, I am afraid, the previous Conservative Government succumbed, to allow the money supply to expand faster than real growth will allow. We must secure a genuine and substantial switch of resources from domestic consumption into savings and into exports. The saver and not the spender must be encouraged. We must accelerate the process of removing subsidy from the nationalised industries.
These policies will be painful and unpopular, but the pain and unpopularity will be far less than if we continue as we are, hiding the harsh truth of economic reality from the British people and creating an ever-rising mountain of domestic and foreign debt.
National recovery cannot be achieved without the support of Parliament as a whole. I do not believe that this Government as at present constituted can overcome the crisis on their own, any more than Mr. Chamberlain's Government in 1940 could overcome that crisis. The pressure of events will soon require a more broadly based administration. The title of that administration whether coalition or national is unimportant. What matters is that it should, over a period of two or three years, follow an agreed stabilisation programme with the broad assent of the majority of the House.
Some seem to think that the mere existence of a national or coalition Government could of itself solve our problems. That is a cruel deception. Such a Government could succeed only if it were to persevere fearlessly and with an iron resolve with the policies which most of us recognise to be essential. If from this Parliament such a Government were to emerge, it would render as great a service


to our country as was done by the last national Government. A new administration is inevitable. The sooner it comes the better.

7.48 p.m.

Dr. Jeremy Bray: No doubt due to a change in the occupancy of the Chair, there have been three speeches in a row from the Opposition benches. I had wished to have the opportunity to speak directly after the hon. Member for Western Isles (Mr. Stewart), not to take up his debating argument extensively but to answer his comments on the Scottish steel industry.
Some of us have been acting on this matter instead of merely talking about it. The hon. Gentleman will be glad to hear that the Lanarkshire works this afternoon had another 1,000 tons a week added to its rolling programme, and it is to maintain 15-shift operation instead of reducing to 10 shifts in the new year. It is that kind of action which we shall continue to see from the Labour Government in Scotland, looking after the true interests of the Scottish steel industry.

Mr. Douglas Crawford: Will the hon. Gentleman agree with his right hon. Friend the Secretary of State for Industry that a Scottish steel corporation should not be set up, or does he think that a Scottish steel corporation should be set up?

Dr. Bray: That is wandering somewhat from the substance of the debate. What I am sure of is that the Scottish steel industry should be able to pursue policies aimed at the expansion of employment in Scotland and the meeting of full demands from the Scottish engineering industry.
We have a grave subject for debate today, and I return now to the starting point this afternoon when the right hon. Gentleman the Leader of the Opposition repeated his accusation against the Government of not telling the truth. Like, no doubt, George Washington's mother he has repeated this injunction several times and this time he specified that he wanted the truth on inflation and the truth on unemployment. I have scanned the Press releases on unemployment, inflation, the trade figures, wage rates and earnings to see whether there is any way in which the Government have been suborning the statisticians, in which they have been

interfering with comment and interpretation by officials on this vital data on which our understanding of the situation is based. I have found absolutely no evidence to support that suggestion.
The Leader of the Opposition is running the grave danger of undermining the public's belief in the integrity of the information provided by the Government statisticians, so that in the vital matters of wage negotiation with which my right hon. Friend the Secretary of State for Employment is so concerned they are misled by the Opposition Front Bench into an utterly misconceived interpretation of the true position.
In delving back through the Press releases I came across those which related to the trade figures for 1973. Here one understands the difficulties of interpretation. The right hon. Member for Worcester (Mr. Walker) had an engaging habit of instant comment—not to replace the civil servants, I am glad to say, because the Conservative Government allowed their officials to comment on the figures. But the right hon. Gentleman always jumped in with his comment. There was an appalling figure for March last year with a deficit of £205 million on the visible balance. When in April the deficit had shrunk to £45 million the right hon. Gentleman said
The April trade figures are excellent. I only wish that those who were predicting gloom on last month's trade figures will begin to realise that Britain's economic expansion is at last becoming export based.
That was the right hon. Gentleman speaking in the middle of May.
When the May trade figures were published the deficit on the visible balance had risen to £209 million and the import bill by a further £120 million. But not to be outdone the right hon. Gentleman said:
A comparison of the export figures for the first five months of this year with those of the same period of 1972 highlights the fine performance of our exporters. There is an ever-increasing volume of raw materials, industrial materials and machinery coming into this country.… It is clear evidence that the expansion of the economy is continuing on a sound basis.
The deficit on the visible balance that month was £138 million. The right hon. Gentleman made no comment in the ensuing months as the deficit rose to £135 million, £158 million, £196 million, £364 million, £278 million and £330 million.
There was no comment on the trade figures but there were Press releases on export opportunties in Germany, small firms, Sherlock Holme's dog, company law reform and "A super department— does it work?".
In September the right hon. Gentleman found himself in Tokyo where he said,
Many congratulations to Britain's exporters.
That month the deficit was £196 million. There were no further comments until 1st February 1974, the middle of the three-day week period, when, speaking at Davos in Switzerland, he said,
What a fascinating and challenging period the last quarter of this century is going to be.
There is a grave danger of the mood of this House and the country polarising itself on the one hand into the" hair-shirt brigade"—we have heard some of my hon. Friends speaking along these lines today—and on the other hand the "soft-head brigade", and we have perhaps heard some of those, too. The difficulty about this is that the hair-shirt brigade might very well find the Chancellor giving us increases in personal allowances for income tax in the Budget within a few months because of fiscal drag. One of the ironies of inflation is that in order to keep up with it there have to be tax cuts. The hon. Member for Oswestry (Mr. Biffen) is always worth listening to. He may talk about tax increases without advocating unemployment, but by crikey he would give us unemployment in a very big way.
The fact is that we are in for a very high rate of inflation for a number of years. That rate may increase or fall, but the realistic attitude of this House must be to consider how we cope with it. Take, first, the question of the practicality of operating on the relationship between prices and incomes. Prices will increase substantially with the increases now on the way from nationalised industries, increases in rates and rents and undoubtedly with some restoration of profit margins. This means that there are going to be, if we are to avoid appalling levels of unemployment, substantial wage increases also. The Government have been scrupulous in their revelation of the true position. They have made available the full story of the way in which the

Treasury looks at the economy, and details of the Treasury's macro-economic model so that people may study for themselves the relations between wages and prices.
It is quite clear that average earnings are primarily a reaction to the retail price index. The actual relationship is in terms of half the effect coming through in the first half-year, four-fifths in the first year and the balance of the effect in the second year. On the other hand price increases are determined by a wider range of considerations—certainly by wages, but also by changes in import prices, taxes, subsidies and profits. There are now very big movements in these last four, and keeping a delicate balance between the movements of prices and earnings should be what concerns the House today.
I take the view that a statutory policy, whether based on a sophisticated indexing system or any other system, can only exacerbate the situation. This point needs to be argued objectively and there is a good hard-headed case to be made against a statutory policy. But we need reinforcements in the way in which that fine balance can be kept. I would prefer to see some means of adjusting in the fairly short-term the level of taxes on income or of national insurance contributions so that the balance could be sufficiently finely adjusted to assure people both of full employment and of a reasonable maintenance of their standard of living.
The effect of fiscal drag is that we are going to have to make continued increases in personal allowances, and effectively that means continued cuts in the rates of tax that people would otherwise pay. Can we not find a means by which such cuts can be made quickly, instead of having the long drag of the Budgets and the adjustments of PAYE?
We need a quick-acting system of tax holidays or national insurance contribution holidays announced at the end of each quarter, to be applied in the following quarter, so that the level of real spending power in the nation is guaranteed. That system would be redistributive towards the lower-earners. A flat-rate tax remission, or reduction of national insurance contributions, would be highly favourable in its distribution to low-paid


workers. I do not press that particular method but let us find some way of achieving the objective.
The second way in which we must look for a means to bring about that fine adjustment between the movement of the total of incomes and prices is to consider what we want to make happen in the economy. There is no doubt that major increases in exports and investment are required.
We have at present a low pressure of demand, which on present indications is likely to fall, so we shall see investment falling next year, and probably slow to respond when demand does increase.

Mr. Hamish Watt: rose—

Dr. Bray: I have already given way to one of the hon. Friends of the hon. Member for Banff (Mr. Watt). I am anxious to let other hon. Members speak.
We shall not have the increase in capacity that we require over the next two or three years merely by the voluntary investment activities of private enterprise. The only practicable way is by a substantial investment in public enterprise or by investment of public money in private enterprise. It must be in those areas of industry where there is potential demand. Heavy engineering and steel in Scotland are examples of such industries. There are shortages of certain kinds of steel. We want to make sure that the development areas as a whole share in the investment. The only way in which that can happen is by public intervention.
I hope that we shall soon be having consultative documents on the Scottish Development Agency and the National Enterprise Board. I hope that the board will be set going quickly, as a major contribution to the macro-economic balance in this country, and not merely as window dressing in nominal fulfilment of an election manifesto.
If we are to live with inflation, we must find a practical way to cope with the balance between the short-term and longer-term uses of money. The most obvious example is in housing. I do not wish to speak of the public sector housing finance problems, because we have debated the matter recently and shall do so again. But in considering the mortgage

market and building activity in the private housing sector we should seriously examine the real value mortgage system. I am puzzled, because Conservative Members, with all their City connections, have failed to pursue the constructive developments needed in some of the most fuddy-duddy sections of the City, where a bit of enterprise, although it would not bring direct financial gain to those in the City, would be of great value to the country.
With a real value mortgage system, the burden of repayments in the early years of the mortgage is eased. It is spread into the later years, when the chances are that incomes will have reflated, and there will be a possibility of repaying faster. The mortgage can be adjusted year by year. There is an interesting article on the system in the National Institute Economic Review. Others seem to have flagged in their reading of that much-discussed journal before reaching that article.
Underlying the discussion in the House and the country is a fear of what is happening at the grass roots. My children, and many of your constituents' children, Mr. Deputy Speaker, have been at school for only two days this week. There is a degree of unease and unrest in the country which can easily get out of hand. It will get out of hand if the Government lose their head and listen to some of the advice they have been given by the Opposition.
Terrible things could happen as a result of the withdrawal of Arab oil money now in this country. But there are vast resources for recycling, without the participation of the Arabs, if need be, by the countries which control the other currencies in which the Arabs would necessarily then have to hold their funds. But what no one can do is to force the people of this country to accept income distribution, uncertainty, hazards in their working lives and fears of unemployment. If the people are forced into action, the danger is of a breakdown in our civil structure.
I am confident that my right hon. Friend the Secretary of State for Employment and his colleagues in the Cabinet will hold fast to the course they have set themselves. I believe that they will do so after the soundest and most objective analysis of the needs of the country in the present situation.

8.6 p.m.

Mr. Ralph Howell: The whole House will agree that we face an economic crisis of great proportions. I fully agreed with the hon. Member for Motherwell and Wishaw (Dr. Bray) that it is not just an economic problem but a danger confronting every aspect of our national life.
We should not allow ourselves to be deceived into thinking that the crisis has been brought about largely by the huge increase in the price of oil. Other countries have to cope with it. We see that the West Germans, for example, have the lowest inflation rate in the EEC, at about 7 per cent., while we are grappling with 20 per cent.
The trouble we face is not the fault of one Government but of all Governments in recent years. We have failed to face reality. In the main, the fault is that of the system we have been operating. The country is weighed down by misguided welfare and smothered with subsidy, so much so that we are completely divorced from reality.
Fifteen years ago the then Prime Minister said that we had never had it so good. Looking back, I think that that was very true. Since then we have had it too good. We have been living beyond our means to a tremendous extent.
What shall we do? The two main questions we should ask ourselves are: "Why are we in this predicament?" and "How shall we get out of it?"
The main reason why we are in our present position is the combination of our tax system and our welfare system, which results in almost every person—certainly every married person, whether or not he has children—being as well off out of work as in work for about three months of the year. This creates a ridiculous situation in which people feel that jobs are not important, and it is virtually impossible for managers to manage.

Mr. Ray Carter: Is the hon. Gentleman aware that Germany, the land of economic prosperity, with an inflation of 7 per cent., has a system of welfare benefits much better than ours? Why is it that Germany, with such benefits, can achieve economic prosperity, yet we, with our benefits, apparently cannot?

Mr. Howell: In Germany there is no PAYE system. No person in Germany can be better off out of work than in work. First, in this country, people can be as much as £9 a week better off in the first 12 or 13 weeks of unemployment than they would be if they were in work. This causes irresponsibility at work.
Secondly, we insist on paying social security benefits to strikers. No other country does that. No other country has a worse record than ours in strikes and wildcat strikes which cause so much damage and disruption to industry. It is in the interests of any Government to alter this situation. A mistake was made in 1966 and it should have been corrected long ago.
Thirdly, we insist on using false unemployment figures and on believing that we have an unemployment problem. We have no unemployment problem. There is still a shortage of labour. We deceive ourselves in believing that the figures for unemployment and for vacancies are correct. The Ministry of Labour admits that it records only 25 per cent. of the vacancies.
Fourthly—and perhaps this is the most serious point—since 1960 and the days when we never had it so good 1 million more people are working in local government, and 500,000 people—teachers, cleaners, canteen workers, and so on—are working in education. We cannot afford to go on at this rate. More than 1 million people who might have been working in productive industry are working in service industries. The load remaining on those in production is too great and it is dragging us all down.
There is only one way in which we shall get out of our economic difficulties, and that is by sheer hard work and by creating conditions in which it pays to work. We must alter our tax system. It is all very well for hon. Members opposite to talk as if this is some way-out Tory thinking. Many people who vote Labour agree entirely with the view I am putting forward. Many people are heartily sick of seeing people who are out of work better off than they are.
If we are to remedy the flaws in our PAYE system, which could be done simply by one small clause in the Finance Bill, and if we were to make all short-term benefits taxable, not only would we


save the rest of the tax-paying public about £200 million a year but we would create an incentive to work and people who were working regularly and consistently would be happier in their work.
There is only one difference between this country and Germany and one reason why Germany's performance is so much better than ours. Germany has created incentives to work, and the Germans are keeping themselves out of trouble merely by working much more sensibly than we are.

8.14 p.m.

Mr. Eric Moomnan: I hope that the hon. Member for Norfolk, North (Mr. Howell) will forgive me if I do not follow him down the road he has taken. It is useful to compare the practices of other countries with those of this country, but in this debate—and it has been a very good debate—hon. Members have dealt with the strengths and weaknesses of our society, and I should have thought that that was a sufficient brief to keep most of us busy until 10 o'clock.
I would like to correct my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) who said that some Members had struck an optimistic note and others a pessimistic note. It is wrong: every speaker has referred to the seriousness of the economic position. Indeed, the right hon. Member for Taunton (Mr. du Cann) said that he was glad to see the back of 1974. I am, too.
My hon. Friend the Member for Tottenham (Mr. Atkinson) referred to the question of public ownership. He made it the centre of the stage for his remedies. He attributes too much to the impact of public ownership. I agree with him about what is required in establishing our basic industries for the national good, but we must recognise that there are operational problems about implementing such major decisions. We should try and make effective the communication, operational and managerial aspects of the public sector as a first priority. We need to get the debate on public ownership into perspective. It is only one of the options open to this Government.
The fact that my right hon. Friend the Secretary of State for Employment is to wind up the debate illustrates perhaps the bizarre nature of any debate on economic affairs in this House. It is a wide-

ranging analysis which takes into account his Department, but also the Department of Industry—yet we have not had the Secretary of State for Trade represented here. The discussion has taken into account the Treasury and the way in which the social contract—that is, the Department of Employment—will tackle some of the problems, but I am concerned that we have heard no voice from the Department of Industry. Perhaps that will be taken into account in the winding-up speech.
I can ignore that part of my script which merely confirms what other hon. Members have said about the gloomy state of the economy. Last week struck an all-time low. There was a slump in exports. Wholesale prices had increased by 28 per cent. in 12 months and are still accelerating. The pound reached a startling position. Some of the factors which make up the present depressing situation are outside our control. Nevertheless, it is useful to consider what we can do to influence matters in areas within our control.
The House must welcome the efforts of the Chancellor of the Exchequer towards producing a workable scheme for the recycling of the Arab oil surpluses which will take the pressure off the world's banking system and aid countries, in particular the developing countries, which have been hardest hit by rocketing oil prices. We must welcome the German Chancellor's announcement that Germany will not adopt a protective attitude in dealing with its economic problems but will take reflationary measures. I hope that the United States will follow suit and thus avoid the dangers and probable disasters inherent in a trade war.
I am not an economist and I do not intend to pursue economic arguments. I am interested in two matters—one, the way in which we manage the economy, and the other, the role of the ordinary people, for it is people who will ultimately decide the economic battle. In my constituency, and I am sure throughout the country, people are saying, "If things are so bad, how can we help?". They have been answered with exhortations about the social contract, and they have been told how they can save energy. Perhaps the statement by the Secretary of State for Energy last week did not go far enough. Plainly there is more to come.
The social contract, or, to be more accurate, the social compact, because it contains no legal sanctions—my right hon. Friend the Secretary of State will agree with that; there are no signatures and there is no other binding formality about it—holds the key to winning the battle. It would be a foolish hon. Member—even a Member as distinguished as the Leader of the Opposition—who would suggest that if we cannot make the social contract, or compact, work there are many other options open to us. This fragile instrument of the compact offers a new approach to Government by consent, valid for hard times as well as for good times, provided we put some effort into making it work instead of merely paying lip-service to its existence.
The strengths are worth mentioning. The Government's recognition of the power and importance of the trade unions and the workers they represent derives from their contribution to the economy and our need for their labour. We cannot shut our eyes to that. Hon. Gentlemen opposite might say that if we shut our eyes to them the unions will go away and we can legislate them out of existence. That was not on a few years ago, and it is not on now.
The second strength of the social contract is the way in which trade unions have grasped the opportunity to exercise not so much power but responsibility. The 8 point guidelines prepared by the TUC for wage negotiations and the concern for the interests of the weaker membership are positive benefits.
The third strength is the flexibility of the social compact. Anyone who has anything to do with industry knows that the hour-by-hour and day-by-day problems of the shop floor will never be solved until management and men meet to try to solve them.
Perhaps there is one word of optimism. Reference has been made to the report of the National Institute of Economic and Social Research which seems to have become essential reading, to many hon. Members. That report said
that the rate of inflation is in principle and up to a point within British control. In August we took the view that the social compact should be given a year's trial to prove itself, notwithstanding our doubts about it.
If there are strengths in the social compact there are also weaknesses. It

would be foolish not to emphasise what they are.
I have spoken previously of the failure of some workers to realise for the time being what the social compact means in terms of wage restraint. Last week Len Murray pointed out the problems that would arise from the NUM claim for a £30-a-week increase. Failure of the social compact jeopardises every other aspect, for example, the Government's commitment to maintain full employment and the level of social security benefits. But the risks of settlements above the level at which inflation is fired must be taken in the interests of the economy as a whole.
One of the greatest weaknesses of the social compact lies in the number of people who feel themselves to be excluded from it. Those people include most wives and mothers who have to cope with the effects of inflation and who have to live on a day-to-day basis. A couple of years ago, a magazine suggested that it is easier for busy mothers to shop weekly, but they cannot because of the pressure on their purse. They have to do their shopping on a day-today basis. They, and many others who, because of the circumstances in which they work, are not members of a trade union or a political party, feel that the social compact does not concern them. I suggest to my right hon. Friend that the fact that they feel in this way should concern him. It is to the senior members of the Government that the public look for a lead.
Those people may receive some benefits from the social compact in terms of an increase in the social services, and so on, but we must be more specific. The social compact has been running for a few months now and I would urge that in 1975 the Government should take the opportunity to explain the obligations of the social compact for the widest possible public.
Management also feels excluded from the social compact. For the sake of the health of industry, management must be brought in. The suggestion that the CBI might be included in the social compact was greeted with some derision. That may be, but if we require advice on industrial matters it is usual to consult the TUC and CBI. We must talk to management on a wider basis.
The British Institute of Management, the central body of management which was set up many years ago by Sir Stafford Cripps, has a membership of 47,000 managers. There are many, many more managers who would like to know what they can do to help with this idea of the social compact. It should not be beyond the wit and intelligence of Government to devise a formula. My hon. Friend the Member for Tottenham suggested a link between the social compact and the planning agreements. Certainly management could be encouraged through the agreements.
If we want to make this aspect of the economy work we must accept that there are three parties to the social compact, not just two. The Government must set up formal communications structures. Most of the communications about the social compact seem to be made in public speeches to third parties. If the compact is to become a contract the parties to it must be made to state economic as well as social objectives for their policies.
Incidentally, Norway has had an interesting experience of a social compact over several years. Norway has not tried to isolate groups of people, nor has it assumed that other people in the community know what is going on.
Another factor associated with the economy is confidence within industry. There has been too long a gap between the publication of "The Regeneration of British Industry" and the present. There has been no follow-up statement. I hope that soon after the Christmas Recess information will be published on how the voluntary planning agreements will operate. Many of us are disappointed not to have had the detailed statements that must accompany the planning agreements.
The Department of Industry should also be showing positive interest in the small and medium-sized firms. It is wrong that such companies feel that there is a "Labour" Government attitude which makes their work more difficult. In short, we have to start convincing people. We have to become more credible, of course. Many of these problems can be looked at on an international level. We should look at the macrostructure as was sug-

gested by my hon. Friend the Member for Motherwell and Wishaw.
Yet when we come down to it, we have to make people feel that Labour not only cares about the way companies take decisions but has the wit and intelligence to help them to achieve their objectives.

Several Hon. Members: rose—

Mr. Deputy Speaker: I remind hon. Members that the wind-up speeches are due to begin at 9 o'clock.

8.28 p.m.

Mr. Norman Lamont (Kingston-upon-Thames): In his speech the Chancellor of the Exchequer made a rather unkind reference to the fat boy in "Pickwick Papers". All I can remember about him is that he was described as beaming benevolence in one eye and calculation in the other. That is quite a good description of the Chancellor's slightly schizophrenic attitude. On the one hand, he tries to be reassuring and suggests that we may be facing difficulties but there is no possibility of a catastrophe and, on the other, he tells us that we face the most serious crisis since the 1930s.
Perhaps that is why people come up to me and ask, "When will the crash happen?". One has difficulty in persuading people that we may now be in the middle of the most serious crisis the country has experienced for many years. As one journalist argued recently, it is rather like the academic dispute about the origin of the universe, between those who believe it began with a big bang and those who believe in the static state theory. There will not come a precise moment when everyone will say, "This is it, this is Armageddon day". If we go on as we are, we shall see a gradual continuing deterioration which will become more and more serious.
Last week I visited the Turner Exhibition, at the Royal Academy. I noticed a large number of Turner sketches of the burning of the House of Commons. I saw sketches which appeared to have been drawn after successive glasses of port, with more and more intensive flames, brighter and brighter colours surrounding the Chamber, and flames going higher and higher. When that great event occurred during the life of Turner, his immediate reaction, on hearing that Parliament was burning, was to rush out into the street


and begin to paint the scene. I feel that today if, God forbid, this Chamber were to go up in flames, that would be the immediate reaction of most people. We do not produce Turners today, alas, but people would appear on the scene with imported Japanese cameras and take pictures. I do not think they would consider that this was the disappearance of an institution which had protected them in the way in which they ought to have been protected.
In past debates on the economy it has been usual to chronicle the miscalculations in economic judgment that the Government have made during previous months. If one wanted to do so again there would be no lack of opportunity. We can cast our minds back to the first Budget in March, when the Chancellor set himself the objective of reducing the Budget deficit, which was then thought to be skyscrapingly high at just over £3 billion. In that Budget he put the great squeeze on corporate liquidity, despite the fact that very strong representations and very firm predictions were made to him about what would happen.
We then moved to the second Budget in July—the mini-Budget with the mini-reflation measures. At that time the Chancellor told us that the measures he had taken between his first and second Budgets had added only a very small amount to the borrowing requirement. That happened early in July. Either the increase in the borrowing requirement has all happened since July or the Chancellor of the Exchequer did not know what was happening to the borrowing requirement at the time of his second Budget, which to my mind raises a serious question about his judgment and the advice he received.
Then we had the third Budget, in which some of the mistakes made in the first Budget were rectified. Some of the excessive squeeze on the corporate sector has now been turned round. I say this not to make a usual party point but because I think that one must have considerable anxiety about the way in which the Chancellor of the Exchequer and the Treasury arrived at their judgment on the economy and their decisions.
We remember the contrast between the Chancellor of the Exchequer as he now is and when he was in opposition,

when he exuded certainty as to how he would be able to cure inflation and reduce the Budget deficit. Yet now we see him floundering around on the Government benches rather like a duck that has just alighted on a frozen pond, and finds itself skidding all over the ice not knowing quite where it is. Perhaps even the hon. Member for Tottenham (Mr. Atkinson) would agree with me to the extent that we must be very anxious about the quality of official advice that has been given to successive Chancellors of the Exchequer. Many mistakes may have been predicted beforehand, as many people outside the Treasury pointed out to the official advisers and to the Ministers.
I should like to see one thing. I hesitate to suggest this, because the British people perhaps have the somewhat unhealthy habit of contemplating their navels far too much. However, the one thing we have not actually contemplated is our navel. I should like to see some sort of committee or commission set up to inquire into the Treasury and to look at the basis on which it makes its judgments. I am so sceptical about the conventional wisdom displayed, including the many economists, who advise even as outsiders, the Treasury. For this reason I suggest that the body set up to investigate the Treasury should comprise a minority of English people and that there should be a number of officials from the United States Treasury and from the Treasuries of Continental countries, because their track records have been much better.
It would be a healthy step to hold a thorough investigation into the conduct of our own advisers in Great George Street. Even if the inquiry only produced the evidence that politicians overruled their official advisers, it would be useful to know that. However, I do not believe that. I believe that the mistakes have been made by many of the officials. I wish sometimes that those officials would come before this House. We are always told that we must not make any criticisms of those officials because they cannot answer back. I make these criticisms because I believe they ought to be able to answer back and that they ought to come to Parliament and explain how they have made many of their decisions.
Many of the forecasts which appear in the Red Book are very difficult to believe. A distinguished former Prime Minister remarked that trying to steer the British economy was rather like looking up train times in last year's Bradshaw. Judging by this Red Book, I fear that it is rather like waiting on a very draughty, cold suburban platform while the train goes shooting past without stopping.
What are we to make of the forecasts in the Red Book about exports for the first half of 1975 compared with 1974? We heard from the Chancellor of the Exchequer today that the world recession meant that the forecasts in the Red Book of a growth of 5 per cent. in world trade and of about 4½ per cent. in British exports did not look as though they would be realisable. But many people made that point when the Red Book was produced. We are told that there is recession in Germany and in the United States. Six weeks ago, when the Red Book was produced, it was known that recession was coming in the United States and in Germany. I find the Chancellor's admission astonishing.
The same is true of the Red Book's figures for investment, which show, in the first half of 1975 compared with the first half of 1974, a drop of 2 per cent. Again, I suggest that the figures are absurdly optimistic. I do not wish to go into the details now, but they do not even square with the figures of the Department of Industry about investment expectations for this year or with the figures of actual investment in the last quarter. I have read all the footnotes and I know that there is a caveat about the expectation of additional investment in oil-related industries and in the chemical industry—industries which, according to the Financial Times Industrial Survey of Investment Intentions, expected no increase in investment at all.
At a time like this we should be having a long, cold look at the methods by which the Treasury comes to its judgments about the economy, about the corporate sector and about energy saving. I agree that what is proposed in respect of the latter is quite inadequate. Then there are the proposals about public expenditure, of which we have no details

yet. Unless we have real cuts in public expenditure, we have no hope of getting on top of inflation.
Another strong doubt which I have about the strategy of the Chancellor of the Exchequer concerns the Budget deficit which he is allowing himself to create. It is an absolutely skyscraping £6 billion. This is an extraordinary development from a man who, in opposition, seemed to become such a high priest of financial orthodoxy. No Persian could have been a more devout worshipper of the rising sun than the right hon. Gentleman when he went on and on, in opposition, about the need to balance the Budget to control monetary expansion. Today, we have a Budget deficit of at least 9 per cent. of our GNP, exceeding even that of Italy.
The sophisticated explanation put forward is that it will be financed in a way which is non-inflationary, but I wonder whether a Budget deficit of this size which, by the time it is finished, will vastly exceed our deficit on our balance of payments, can be financed in a non-inflationary way. It is one thing to borrow to finance investment, but merely to borrow to finance consumption is the road to ruin.
What will the Budget deficit do to interest rates? I can remember the Chancellor of the Exchequer, in opposition, criticising the then Chancellor, Mr. Barber, for his Budget deficit because it would raise interest rates sky high. This is what we can expect in the future.
We can now see the Government's strategy in the election was based on three frauds. There was the inflation fraud, whereby suppressed inflation has now become unsuppressed. There was the fraud about the exchange rate which, it was boasted, was strong and firm, but is now clearly being allowed to depreciate. Then there was the fraud about the social contract.
The Prime Minister always seems to adopt the motto of an American salesman; always sell the myth, never the reality; always sell the tinsel, never the Christmas tree. We were continually told that the social contract was the gateway to the promised land and that there was no other way to deal with inflation, but we know now that there is another way. We heard it from the Chancellor in his


Budget speech. That other way is unemployment, because the right hon. Gentleman went out of his way to explain that if the social contract did not succeed he would have to take measures to curb demand and that would bring about a rise in unemployment.
I am glad that the Chancellor is now being realistic and recognises the realities facing this country. I hope that he read the article by Professor Beckerman in the New Statesman recently, in which he argued that if the Government cannot secure the compliance of the trade unions with their incomes policy, why should they be responsible for the unemployment that will follow from the actions of the trade unions?
To the extent that the incomes policy is successful, the less unemployment will need to be tolerated. But how can we argue that the Government's commitment to full employment should be absolute, but that the trade unions' commitment to the social contract should be conditional?
People may ask "How can we expect the trade unions to co-operate unless we maintain conditions of full employment?" The trade unions may be more willing to co-operate, but will they be more able to co-operate in the conditions that we have now?
The Chancellor doubted whether running the economy at a lower level of demand could do anything to reduce the pressure of inflation within a relatively short time. I hope that he will pay attention to the advice of realistic people like Professor Beckerman in the New Statesman.
I am not saying that unemployment cures inflation. That would be like saying that staying in bed cures a cold. It does not. However, one has to stay in bed as part of the process of curing a cold.
Inevitably, a rise in unemployment is one side of the side effects of dealing with inflation. This is not a moral question. It is not a question of black and white, or of blind reaction against a more compassionate approach. How can we argue that to allow a small rise in unemployment now is unacceptable compared with waiting for inflation to develop and for a much greater rise in unemployment to

occur at a later date? How can we say that it is wrong to allow 4 per cent. of workpeople to be unemployed, if that will safeguard the jobs of 96 per cent. of the labour force? That is what Professor Beckerman was saying in the New Statesman, and I believe that that is a realistic approach.
I remember reading that Abraham Lincoln was asked why he looked so sad and wise. He replied that it was because he knew that he could not get all that he wanted. We all want everlasting sunshine, we all want price stability and full employment, but the reality is that we cannot go on as we are. We must tell the people the truth. Unless we do that, there will be an awakening of bitterness such as we have never seen before.

8.44 p.m.

Mr. John P. Mackintosh: I want to make only one comment on what was said by the hon. Member for Kingston-upon-Thames (Mr. Lamont). Although I take note of some of the criticisms which are often made about the expert advice which is tendered by civil servants, I think that in the last resort the key decisions facing this country will have to be taken by politicians. We cannot duck our responsibility by passing those decisions on to other sectors of the community. Therefore, we must face the key choices that lie before us.
I will begin with a statement with which I hope all hon. Members will agree. We cannot have an indefinite continuing increase in the rate of inflation in this country without disaster. If inflation here goes on increasing, particularly when inflation in Germany and the United States is going down, in time we shall reach a position where not only countries with large oil revenues but other countries will not be prepared to hold money in this country. Then we shall get a run on the pound, and a classic sterling crisis and disaster. Therefore, we have to focus our policies, from whichever side of the House we speak, on the objective of stopping the present rate of inflation from going up further still.
At this point, one turns to the strategies available to handle this matter. I think that the reason why the Opposition lost the last election was that they had no strategy. Only one strategy of any


serious nature was put forward, and that was the one advocated by my right hon. Friend the Member for Ebbw Vale (Mr. Foot) and his colleagues and by most hon. Members on this side of the House, which was to use what is commonly called the social contract.
Let us consider precisely what that strategy implies, because we have got into rather arid arguments about it. The argument was that we should hold wage increases by voluntary agreement to a level equal to previous price increases but there were also other elements in the strategy. It was assumed that raw materials and other component prices would not continue to rise on the world markets and thus, if we held wages at the agreed level, productivity gains would mean that the rate of inflation would come down as a result of this higher level of productivity. The strategy was specifically designed to produce a decline in the rate of inflation in 1975 and we were told that then the rate of inflation in 1976 would be down into single figures. That was the totality of the strategy.
One has at some point to ask how far the strategy is succeeding.

Mr. John Gorst: rose—

Mr. Mackintosh: I have to restrict my speech to enable others to take part in the debate, and I think that it would be better if I were not to give way.
I have outlined the totality of the strategy, and we have at some point to ask whether it is working, or what evidence there is that it is not working.
I am told by the Leader of the Opposition that the present rate of inflation is not 18 per cent., as the official figures show, but 21 per cent., and I know that figures bandied about by Government Departments and experts suggest that by March it will be 23 per cent., which is roughly the level of the forecast made by the National Institute.
My right hon. Friend the Member for Ebbw Vale (Mr. Foot) interrupted my hon. Friend the Member for Ashfield (Mr. Marquand) and said, "Do not say that the strategy is failing, because if you say that you make it more likely that it will fail, you make it more dangerous".
Now, we must realise that the strategy could fail on any of three different fronts:

first, because wages are going up too fast; secondly, because world raw material prices continue to increase and if this happens, then wages have to be held at a lower level for the strategy to work; thirdly, because we may not get the forecast productivity gains. We need all those three things to go as forecast to have the end impact on prices that was originally planned. If the Government want to act on any of these fronts, they must recognise that it is difficult to get productivity up easily especially when investment is declining. It is difficult to get world commodity prices down, particularly when the Arabs are still putting up oil prices. The one thing that one can operate on is wages, and it is the residual factor.
Now on the wages front, there is some evidence that the strategy is not working as well as we had wanted. I appreciate what my right hon. Friend said. If one talks in this fashion one may encourage trade union negotiators to ask for more or to go further, but there is the valid point that if one never asks how the policy is working, or at what point it begins to fail, one may proceed with the policy until great damage is done, and until it is even more difficult to turn back or change course.
I recall the damage that we did by refusing to face the need for devaluation before November 1967. We went on pretending that supporting the pound at its old value was working. We went on long beyond the point at which we should have continued to support the policy. There ought to be some criterion in the Government's mind, some fall-back position to which they can retreat if and when the overall strategy for containing inflation does not work, because if it is allowed to fail over a prolonged period, we are heading for disaster.
I do not expect great announcements on this. We do not expect clear points, but we want guidelines. It is particularly important to prepare the public, trade unionists and industrialists for the idea that beyond a certain point the policy will no longer be working. This is why the appeal which I made in the Budget debate and which my hon. Friend the Member for Ashfield made tonight is so important. He said, "Tell us what settlements are within the strategy, and what settlements


are without it". My hon. Friend the Member for Ashfield said, "Give us some indication of the situation."
It is not clear to many rank and file trade unionists what is within the social contract and what is outside it. Trade unionists say to me, "We fought the election together on the social contract. We are now involved in detailed negotiations about night work, shift work payments, "dirty" money payments, special bonuses and so on. Which network of claims would be within the social contract?" I cannot answer them because I am not up on these matters. If I cannot understand the situation, how can I expect them to know all the answers? If the Government will not vet wage claims and say what will be within the strategy or what will result in failure, how can we expect them to work? This is a point we have missed.
I was interested to hear that the CBI considered setting up its own vetting machinery to decide which claims were within the social contract and which were outside it. However, the CBI decided not to follow it through. They decided to take no action because too many industrialists found that if precise guidelines were stated they would be morally obliged to resist claims outside the guidelines and they considered that if they did so, they might face strikes and might then become bankrupt.
So we have little strength on that side of the industrial bargaining process. The only strength in terms of a voluntary system lies in a clear indication by the Government of the point at which the system will break down. Unless we get this into people's minds, they will not be prepared for any change of strategy which may be forced upon us. I hope that a breakdown does not happen and that the Secretary of State for Employment succeeds in his efforts to make the social contract work. Every Member in this House should back him. However, we must be ready to face the point at which the contract may not work and we may wish to make a change.
I fear that there are many ways in which we can continue to delude ourselves. Indeed, there are many ways in which the public can pretend that things are better than in fact they are. Many members of the public are not all that

worried about inflation. I do not think the public have fully taken on board the fact that inflation inflicts terrible damage on pension schemes and hurts people who are due to retire. They are not aware of how many small organisations are at the point of collapse because of inflation. I do not think many people realise that a redistribution of income in an egalitarian way arises from inflation. We have to do more to prepare the public psychologically for a change in strategy if it becomes necessary.
There are other ways in which we can persuade ourselves that no action need be taken. We can take the view that we are heading off the danger of the situation because the Arabs are keeping so much of their money in sterling. I sometimes get a little worried about such a policy. I am not happy that by 1980 we should be so much in debt to other people. I am surprised that people are content with that policy, and I am not sure that we shall get to 1980 without a major crash or withdrawal of those funds.
We can also hide from ourselves the tremendous decline in investment which is taking place. We are told that next year investment will be down 10 per cent.-plus. We shall not feel the impact of that factor until we experience falling productivity and further balance of payments problems in the years ahead.
But we cannot stay in this situation indefinitely and I have a real fear of hyper-inflation.
If this situation continues, the time will come when countries will not be prepared to hold their money in sterling and, despite the floating rate, we shall not be able to maintain our reserves. There will be a run on the pound and we shall be faced with a crunch situation instead of a slow slide. I do not know which of the two I prefer, and I would prefer that we had neither. However, I am worried that we shall go on pretending that the situation is not as serious as in fact it is.
I come to possible remedies. What alarms me is that if and when the crunch comes, or if my right hon. Friend the Secretary of State for Employment fails in the policies on which he has embarked, there will be a midnight meeting at Chequers or Downing Street, with the TUC, the CBI and the Government present, and that on that occasion when


the Government turn to those outside agencies for advice and says "What shall we do? ", it will be the first occasion on which there will be no answer. Those outside bodies have no clear idea of which way to go.
There is no escaping the responsibility which faces the Government. One choice that is being peddled is that we should have another devaluation. That would be disastrous in terms of import prices. We could not face a further sag in the value of the pound. Some people believe that the easiest residual solution is heavier unemployment. That is the orthodox view advanced by the hon. Member for Oswestry (Mr. Biffen). It is a view that is held in other quarters. Not only do I dislike the social implications of unemployment, but I believe that heavy unemployment reduces productivity and tends to exacerbate inflationary forces. It is not an adequate answer. Also unemployment does not reduce the bargaining power of those in critical sectors of industry and it is that bargaining power which is pushing up wages.
I understand that in a Cabinet Paper an idea—put out at the General Election —is being peddled that we should freeze the prices of certain firms, and those firms, presumably, not being able to put up their prices, would have to resist wage increases asked from them or face bankruptcy, and this would in turn force down the rate of wage increases. But this policy is also unsatisfactory because it would not operate in the public sector, which would be dangerous, because the price mechanism does not operate there. Secondly, in the private sector, it would operate only through heavy bankruptcies, which I certainly do not want to see.
Whichever way we turn, the voluntary incomes policy being pursued by the Government is still the right way, in the sense that the most rational and sensible way to proceed is through operating directly on the level of wage settlements. But if that voluntary policy does not work, the question is whether we ought to face a return to a statutory incomes policy of some kind rather than face the greater dangers of devaluation, or bankruptcy, or heavy unemployment as alternative changes of strategy dictated by the situation.
This is where I quail for the future of democracy. I know that many hon.

Members on both sides of the House say that the most rational and sensible thing to do is to operate on wages, if necessary by a statutory policy—and then those hon. Members turn back to me and say, "Both Labour and Conservative Governments have tried it. Each in turn have then faced confrontations and has been beaten. We cannot do it."
But it is the death of democracy if one says that the most rational, least socially-damaging way of doing something is something that one's institutions cannot handle. This is a matter we have to face and tackle. We have to say, "This is the least harmful way of doing it." Let us sell it in the interests of justice and of prosperity. If we do not, then a more disastrous strategy may well be forced upon us. I hope that it is not inevitable that we will be faced with this kind of choice, but if so, then we must accept our responsibilities and tell the country what is the best alternative open to us.

8.57 p.m.

Mr. Michael Grylls: I want to touch on one subject which has not been dealt with very much in the debate, and as I have only three minutes I hope that the hon. Member for Berwick and East Lothian (Mr. Mackintosh) will forgive me if I do not refer to his speech.
Perhaps one of the most worrying aspects of the situation is the apparent total collapse of investment in industry. It is vital that the Government do something about it. What worries people when they see that investment is not going on is that the Government really do not know what is happening. The CBI survey a few weeks ago showed that there had been the steepest fall in industrial investment for 11 years.
The problem is that real profits are too low. I agree with my right hon. Friend the Member for Taunton (Mr. du Cann) —who made an excellent speech—that there has been too much sniping at profits, that profits are the thing which will make investment. There is no other way. I am sure that the Chancellor of the Exchequer agrees that he, as a member of the Government, does not want to see the Secretary of State for Industry going round giving out money in this situation in order to prop up industries, because, generally speaking, those he props up are


usually the least profitable—the ones which should not really be propped up.
If industry does not have enough profit to be able to invest in new plant, to increase working capital, and to deal with inflation and all the other problems we have been talking about—replacing outdated machinery and buildings, and attaining higher productivity—I believe that whatever successes the Government may have in other areas their economic policy will be doomed. If industry does not have money it will cut back its investment plans and stop investing. It will pull up the ladder and aim simply to survive.
Listening to the Chancellor of the Exchequer today, it seemed to me that he did not realise that a problem existed. As I have taken only three minutes, I hope that the Secretary of State for Employment will do me the courtesy to answer one point. What is the Chancellor going to do about encouraging confidence and investment in industry?
Will the right hon. Gentleman act, or does he believe that everything is all right? Perhaps I and other commentators tonight are wrong, but will he tell us what he is going to do? If he will tell us that he will put curbs on the Secretary of State for Industry and lock him up for a few months, we shall get more industrial confidence. Or perhaps he will cancel advance corporation tax, or lower the rate of corporation tax, or just easy the Price Code a little more. If the Government will give us that answer tonight, it will be the biggest contribution that they can make to improving industrial confidence.

9.1 p.m.

Mr. Robert Carr: One is always tempted by the context and atmosphere of a House of Commons debate to make a speech from the Opposition side condemning the Government for their mismanagement and complacency —and that would not be difficult tonight. People outside may sometimes underestimate the value of such hard, pounding debates, but I am sure that the national need at the moment is too great for that tactic tonight and that the national mood rightly demands that Parliament should seek constructively to find as much common ground as possible and to lead the way out of our crisis. That has been

the dominant mood of this debate. That has been obvious from speeches from both sides.
The background of the debate is that the immediate state of our economy and the underlying economic prospects combine to face us with a situation which is more grave than any hon. Member has ever had to face before. A position which was already serious in the summer and autumn has become substantially worse in the two months since the election. Indeed, I believe that the Chancellor himself admitted as much today. That cannot go on without disaster; strong new action is required urgently.
There are two underlying requirements which have come out strongly in speeches by my hon. Friends and by my right hon. Friend the Leader of the Opposition—and also, to be fair, by hon. Members of other parties. The first is that the Government must now tell the country the full truth of the situation and stop concealing —whether intentionally or otherwise I do not know, and I will not go into the question now—both the present gravity of the crisis and the future dangers which face us. Until they do that, the Government will not be credible in putting over whatever policies they think right.
This is also necessary because large numbers of people—I suspect still the majority—do not yet feel a sense of crisis in their personal lives. One of the difficulties faced by successive Governments over a number of years has been how to bring home effectively the major structural changes in policy in industry and in social affairs which this country needs, when in the short run the majority of people feel that life is probably better than they have know it before. The Government must tell the full truth of the gravity of the crisis, actual and impending.
Second, they must put forward a national recovery programme of policies which concentrate on essentials and which jettison inessentials, particularly those which are socially and politically divisive, and put forward a programme of policies with ingredients which bring home to people in their daily lives the fact that we are in a crisis which both requires and allows them to give their active co-operation.
I very much agreed with what my right hon, Friend the Member for Taunton


(Mr. du Cann) and, indeed, the hon. Member for Ashfield (Mr. Marquand), among others, had to say about that need. It was the feeling—not only from the Opposition side of the House—that the Government have failed so far and are still failing in both these matters, and that they must respond quickly to this need.
One of the basic facts about our economic position, with which we must come to terms, however much we may dislike it, is that we have a great and rapidly growing dependency on foreign borrowing. That, in turn, makes the maintenance of foreign confidence in our affairs probably the most important single factor in avoiding catastrophe, at least in the short run. That is our first major criticism of the present Government. It is not that we believe that foreign borrowing is wrong in itself, or that it is unnecessary in present conditions. It is the scale of it which we criticise, and the almost voluptuous pleasure which the Government seem to take in piling up foreign debts.
This points immediately to three of the most urgent needs and, as we believe, the most culpable failings of the Labour Government since March. First, the country must—I use the word "must" because it is the only word to use—economise in the use of energy, in particular by reducing the need for oil imports. Yet after nine months in office, last week the Government produced a miserable little package, in which, for example, they said that talks were only just about to begin with the local authorities. By now, every third street light ought to be out, or something like that. There ought not to be as much floodlighting and display lighting as there is. We have waited nine months for talks to begin.
Quite apart from the savings, actions of this kind will help to bring home to people the fact that business is not just going on as usual, and cannot go on as usual. Even in the one matter of petrol pricing, where the fuel economy campaign—I do not complain about this—is being carried to a stronger degree, what did we see yesterday? We saw the Government announcing their latest decision in a Written Answer to the House. From the parliamentary point of view, what a row there would have been had any other party, in government, tried to do

that. But from the psychological point of view, what madness it is to announce measures which will hurt lots of people who have been hurt fairly badly already— and to announce them in such a casual way. I nearly said that it was an underhand way.
Secondly, we must get our own oil supplies flowing at the earliest possible moment. Yet whatever may be the ultimate rights and wrongs about the question of ownership, it is surely indisputable that by raising this question now there must be delay. Whatever may be the rights and wrongs in principle, the proposals for nationalisation, as well as the particular proposals for taxation which are passing through Parliament at present, are causing confusion and delay. As my right hon. Friend the Leader of the Opposition pointed out, every day's delay costs us millions of pounds across the exchanges.
A third area in which our needs are most great and the Government are most culpable is the need to keep to a minimum the Government's borrowing requirement necessary to balance the Budget. That is a point about which the Chancellor used to criticise strongly my then right hon. Friend, now Lord Barber, and which in March he made a major point of reducing. Far from carrying out the reduction, the Chancellor has put the borrowing requirement to levels which no one previously would have imagined possible without very serious and almost immediate results.
However that may be, for the moment we are largely dependent on borrowing from abroad, and particularly on borrowing from the Arab countries. We are therefore largely dependent on sustaining foreign confidence. If foreign confidence were to collapse, so would the pound. There would then be no doubt whether disaster would come quickly or slowly.
In these circumstances other countries will be looking not just at our balance of payments position but at the whole range of our policies and performance. Regardless of whether we wish to take these matters seriously, other countries will—so we must take them seriously. Whether or not certain hon. Members of the Opposition wish to see large sectors of our economy nationalised, the large majority of the British people do not want this, and those from whom we borrow


overseas, on whose confidence we depend, most certainly will not have their confidence supported by measures of this kind.
Our present policy as seen through our own eyes, and still more as seen through the eyes of other countries, throws up a number of major danger points, in addition to the fundamental one which I have already mentioned.
Danger point No. 1 is the high and rising rate of inflation. If the rate of inflation, although high, were falling—as the Chancellor was claiming during the General Election campaign—the confidence factor would be very different. But it is now not only high; it is rising. As departmental figures published in the past few days show, the retail price index has risen by about 18½ per cent. in the past 12 months, and over the past three months it has risen at an annual rate of over 21 per cent. That is not only a cause of suffering, injustice and anxiety here at home but a potential cause of loss of confidence abroad.
Of course, the Chancellor was right when he said in his speech that the most essential need is to reduce the rate of inflation, which is at present rising, and that the most single important element in doing that is to get more restraint over pay increases. Having made those two statements about the country's greatest need, however, he gave us little clue as to how the Government were proposing to achieve that need. He has left it to his right hon. Friend the Secretary of State for Employment to deal with this. Many of us thought that clues regarding this most vital need might be better given at the beginning of the debate rather than at the end, but so long as the Chancellor's right hon. Friend tells us about these clues we shall say, "Better late than never".
Danger point No. 2, which has been brought out by the debate, is the recent deterioration in our balance of trade. Last month's figures, as has been pointed out, were the worst ever. The Government were boasting both during the General Election campaign and before it that at least the non-oil part of our trading deficit was decreasing; indeed, the Chancellor made some claim about that in the closing part of his speech this afternoon. The deficit was reducing, but

it is no longer reducing. In the past three months it has increased each month —from £53 million in August to £65 million in September, to £105 million in October, and to £227 million in November.
Danger point No. 3 is the current level of pay increases. Figures published this afternoon show that over the past 12 months basic hourly wage rates have risen by 27 per cent. What is more, in the period since March they have risen at an annual rate of 33 per cent. It is impossible for that to continue without massive inflation and, before very long, massive unemployment.
Danger point No. 4 is stagnating production, which is all the more dangerous when we have wage rates rising at the sort of pace we have now. Figures published last week, I think, or certainly very recently, show that the index of industrial production has fallen for three months in succession and is now 1½ per cent. lower than it was in July. What is the basis for confidence that the Chancellor's forecast, in the Red Book, about the very modest rise in production next year, will come about?
Danger point No. 5 is industrial unrest. Commenting on the latest index of production figures to which I have just referred, the Central Statistical Office said in its Press release:
It is difficult to assess the present trends owing to the effect of industrial disputes.
In absolute terms that is a serious matter, and it is especially serious as seen through the eyes of foreign observers.
From April to October this year we lost nearly 6 million working days, almost exactly a 50 per cent. increase on the number of working days lost in the same period last year. It has been estimated that the motor industry this year—

Mr. Healey: Does the right hon. Gentleman not agree that it is 30 per cent. less than the number lost in the seven months before the February General Election?

Mr. Carr: I am not quite sure where that gets us, for it was this Government who claimed, "Get rid of all the previous Government's anti-inflation policy, and, in particular, abolish any form of pay control, repeal the Industrial Relations


Act, and institute an independent conciliation and arbitration service "—which, as we have heard today, is evidently to pay no regard to any principles or rules about national policy and national interest—" Do all those things and confrontations will reduce and come to an end".
I am pointing out that far from moving in that direction we are moving in the opposite direction. There were 1½ million days lost in October alone this year, and I repeat that the number of days lost in the period from April to October 1974 was 50 per cent. greater than in the same months last year.
Danger point No. 6 is the collapse of productive investment, to which special reference was made by my hon. Friend the Member for Surrey, North-West (Mr. Grylls). Greater productive investment has been one of this country's chief needs not for a few years but for many decades. Britain's poor performance—to be fair, under successive Governments of both parties—has been one of the most worrying features of our economic and industrial affairs for a long time.
A year ago—very late, it is true; disappointingly late from the viewpoint of the policies of the last Conservative Government—we had at last reached a point at which investment intentions were rising strongly, and future investment intentions had attained a record high level. A year later those intentions are in collapse.
Danger point No. 7 is the size of the public sector borrowing requirement, mentioned in particular by my hon. Friends the Members for Oswestry (Mr. Biffen) and Kingston-upon-Thames (Mr. Lamont), though not only by them and not only in Opposition speeches.
We believe that this carries the grave danger of inflation and perhaps the even graver danger of instability. I use the comparative in reference to stability because I accept that at least so far this very large extra borrowing requirement has largely been financed in a non-inflationary manner by foreign borrowing. Nevertheless, that does not make it safe, advisable or acceptable. It is too precarious, as my hon. Friend the Member for Oswestry pointed out, and as the hon. Member for Berwick and East Lothian (Mr. Mackintosh) also said, in effect. It may be all right to borrow to finance productive investment, but it is

not right to go on borrowing endlessly to finance consumption and to pay for public services.
These, therefore, are some of the danger points which I believe have been brought out in the debate. Just as the debate has highlighted the danger points, so I think it has directed us towards the solution of our problems. The essence of the matter is, of course, that we are now living far beyond our means.
In the short run we must cut back on current consumption and on our expectations for our standard of living. In doing this we must above all do what we can to protect those in need—the pensioners, the sick and disabled, the unemployed and the lower-paid. We must do this by special help and not by wasteful general subsidies. The rest of us, however—which means the great majority— must now accept some real sacrifices, some real cut in our personal standards of living. That needs saying, and the Government have not yet said it loudly, clearly or without equivocation. Let them say it now and we shall back them, because I believe that the majority of us in this country must accept some cuts in our standards if we are to get through the crisis.
At the same time, if we are holding back consumption we must take action to increase our national means, so that in the future we can afford to live better. We must therefore devote more of our resources to productive investment and export. That is exactly what the Chancellor said in his Budget in November and what he said again today. We strongly agree with him and we shall back him in any moves that he makes in that direction. But we must tell the Chancellor that he is simply not doing enough to achieve the necessary transfer to meet our crisis. It requires on the one hand stronger restraints and on the other stronger boosts to productive investment, exports, and home food production.
Let us look at the restraints. The first is in pay. There has been debate today on how it should be done. For better or worse we are now committed to the social contract and it does not seem to be standing up very well. Whether it is right or wrong, it is a road we are committed to travel. The Government must try to make it stronger and more specific, and


bring more people into it. They must set down stronger guidelines and provide some sort of referee for judging special cases so that people will know where they stand. This appeal comes not only from these benches.
There must be more restraint in public spending. There cannot be any real increase in public spending for the next year or two, and if there are increases in some areas there will have to be savings in others to match. We cannot afford increases at their present levels. There must also be a reduction in the public sector borrowing requirement. To the extent that we cannot get sufficient restraint in these ways we may have to face increased taxation, because that is the only way to reduce the public sector deficit other than by reducing public spending.
I put these proposals forward reluctantly, but if they are necessary they must be carried out. As we said quite clearly in the General Election campaign, extra spending must be covered by savings, or, if that cannot be done quickly enough, it must be covered by extra taxes.
Let the Government also examine ways to increase savings. That is an important method of holding back current consumption—much better for the ordinary person than paying extra taxes.
In total, all these measures of restraint must be strong enough to free enough resources to transfer to investment and exports. They must be matched by stronger boosts to investment and efficient production, and more help to agriculture. We must restore to industry profitability, or the hope of profitability. However, to overcome the crisis, however strongly some Labour Members may believe in nationalisation, we must also remove the threats of nationalisation and ministerial direction in industry. We must remove the threats to farms and businesses brought about by the capital levies proposed by the Government.
We must encourage savings by creating the belief that inflation will be tackled, by adopting an income tax system which does not penalise savings and savings income, as the Government's proposals do, and by abandoning the present proposals for capital transfer tax and wealth tax, which, if levied on top of our present income tax system and levels, and on top

of our present personal capital taxes, will encourage spending rather than saving.
We must give a major new boost to training. I hope that the Secretary of State for Employment will say something about this. I am glad to say that it is a non-party matter. When we were in power we put in hand a major reform and expansion of the Government training programme, with a plan for rapid expansion to put us more on a level with countries such as Sweden, in labour market policy terms. It is vital—even more important than a few years ago— that that programme should be carried through with great urgency on the most massive scale possible.
What we need is a massive transfer of resources to investment, saving, training and exports. This transfer must be at the expense of immediate consumption.
Let me face the bogy of unemployment fairly and squarely. Whatever the Chancellor does, unemployment will rise next year. I do not think that he will try to deny that. The only question is how far, how fast and how much further it will rise in 1976. There is no longer any question of choosing between unemployment and inflation. As the Prime Minister said, they are now the same problem.
We do not want to see anyone unemployed who need not be; unemployment cures nothing. But if we let wages rip and boost consumption now, we shall not be preventing massive unemployment; we shall be causing it. We must free resources from consumption, but at the same time we must re-absorb those resources by pursuing strong, positive policies to encourage profitability and savings, and therefore to encourage productive investment and by an active labour market policy, to help people train and move quickly into new jobs and expanding industries, which have too often been starved of labour. That is the only way to provide secure jobs and prosperity for the future.
The debate has shown that there is some common ground in the House. With the exception of the more extreme Left wing, perhaps, we find that the differences between us are now more of degree than of kind. I believe that it would be possible to construct a national recovery programme which could command large majority support in the House. If we had a programme that was seen to command


such support, I believe that it would command great respect and following in the country at large.
Such a programme should be, and certainly could best be, constructed and carried out by the sort of broad-based national Government for which we pressed in the election—formed for a limited period until the crisis was overcome. But, although less easily, such a programme could be carried out and constructed by this Government or any other party Government if that Government were determined to put national need and national unity first.
If the Government propose such measures, we shall support them. What we shall oppose tonight, and go on opposing, is continued drift and complacency, and a continued insistence on narrowly based partisan measures. The right hon. Member for Ebbw Vale, about 40 years ago, had a lot to say about guilty men. Let him and his colleagues be very careful that they do not become guilty men themselves.

9.30 p.m.

The Secretary of State for Employment (Mr. Michael Foot): Apart from a few words spoken by the hon. Member for the Western Isles (Mr. Stewart)—and I apologise for my absence for a few minutes then—I think that I have heard every word spoken in the debate, which has covered the whole range of interlocking crises which face the country. If I were to seek to reply to all the different aspects of the matters mentioned in the debate, I should more than exhaust the time available to me. Therefore, I hope that no one will think me discourteous if I concentrate on the matters which fall most directly within the scope of the departmental questions for which I am answerable to the House, particularly those concerned with wages, with the social contract and with the way in which it seeks to affect wage settlements and income settlements in general.
That does not mean that I think that the other subjects which have been raised are not of paramount importance. I hope that we shall have a debate on the Manpower Services Commission and the working of the training services. That is a matter to which the Government attach the greatest importance. Even in these times of financial stringency, the Chan-

cellor of the Exchequer has, I am glad to say, provided increased resources for that purpose. We hope greatly to strengthen the activity and operations of the Manpower Services Commission and the two executive arms which operate under it.

Mr. Heath: If the right hon. Gentleman is prepared to speak only on the narrow front which he has described, can he say why the Prime Minister is not replying or why he is not even present on an important occasion such as this?

Mr. Foot: The right hon. Gentleman made his speech and then cleared off very fast. He might show me a little courtesy and, before interrupting, allow me to say a few sentences. I shall try to deal with the central questions about pay and the social contract, which I should have thought it was perfectly proper for me to deal with, and the matters upon which he and the right hon. Member for Carshalton (Mr. Carr) have touched. I do not think the right hon. Gentleman can have any complaint on that score.
Some hon. Members have criticised my right hon. Friend the Chancellor of the Exchequer for having replied rather forcibly to some of the criticisms made about himself and some of his policies. I should not have thought that that was a ground for complaint. They did not criticise the main part of his speech, which referred to the international situation and other aspects of our problems. My right hon. Friend explained that he was not the sort of person who would turn the other cheek; it was not his normal custom. He reminded me of the statement made by the explorer Dampier—[HON. MEMBERS: "Get on with it."]—who, after his explorations, reported that the Papuans were a fierce and intractable race of savages who, when fired upon, had no scruples about retaliating. What the Chancellor of the Exchequer did was to retaliate to some of the attacks made upon him, as he was perfectly entitled to do.
As I said, I intend to reply directly to the figures which the right hon. Member for Carshalton quoted. I hope that that will not be thought to be the wrong way to proceed. I start with the figure which was published by my Department today of the 26·4 per cent. increase in the weekly wage rate index over November of last year. Last week we published the


November retail price increase of 18·3 per cent. over the previous 12 months. The figures are serious, and the Government do not intend to minimise their significance. We are prepared to face the argument about them, and our desire and purpose as a Government is to see that those figures are reduced by all the sensible policies which we can bring to bear.
Before anyone runs away with the idea that responsibility for these matters rests entirely with the Government, before anyone, either inside or outside the House, starts rushing to conclusions, let us examine a little more closely what the figures contain.
The weekly wage rates were not settled by me; they were not predominantly settled by the social contract; they were not in the main settled by the negotiators who were engaged in the operations. In the main they were settled by the stage 3 Pay Code laid down by the previous administration. My right hon. Friend the Chancellor of the Exchequer has already explained that 11·7 per cent. of the 26·4 per cent. is accounted for by the threshold payments. Another ½ per cent. is accounted for by the London weighting allowance, on which we followed, not in every detail but in the main, the report which came from the Pay Board. We did not follow it inflexibly because that would have led to disasters of which the right hon. Gentleman knows.
There have also been some special cases, and I grant that. The Conservative Party, which so often boasts of its candour, has never told us whether it agrees with the special arrangements we made for nurses, postmen, railway men and London Transport. Those were special cases which added about another 2 per cent. to the figure. Right hon. and hon. Gentlemen opposite during the election campaign and thereafter have never said whether they agreed or disagreed with those settlements. I assume that most hon. and right hon. Gentlemen are aware of the excellent reasons we had for those special settlements. They were the groups of workers who had fallen furthest behind during the period of statutory restraint. As the reasons for those special arrangements are, I believe, now accepted on both sides of the House, I do not think that any criticism can fall on us on that account.

Mr. Peter Tapsell: However these figures are accounted for, and whoever may be responsible for them, will the right hon. Gentleman tell the House what the Government intend to do to control the raging wage inflation which is threatening us all with disaster?

Mr. Foot: The hon. Gentleman should be a little more patient. I shall deal with the matter in my own way and in what I think is the proper way.
Of the figure of 26·4 per cent., 12 per cent. remains, which is rather less than the kind of figures achieved under the basic stage 3 rules. Where is the wages explosion which the right hon. Gentleman says we are experiencing? Most of the 26 per cent. is accounted for by the methods I have described. The right hon. Gentleman has never understood the situation and has never attempted to understand it. Moreover, never having understood the situation, he never wanted to understand it.
What was the range of settlements— [Interruption.] I hope that the House will permit me to continue, as I have the same right of reply as that which the hon. Gentleman had a little while ago.
I do not know why the hon. Gentleman should regard the figure of 26 per cent.—

Mr. Gorst: On a point of order. May I appeal through you, Mr. Speaker, and say that the right hon. Gentleman does not have the same right of reply? He is treating this House to a grave discourtesy. He has made it clear that he will not reply to the whole of the debate but only to half of it. Could you not ask the Chancellor of the Exchequer, who was not here through the whole of the debate, perhaps to reply on the Minister's behalf?

Mr. Speaker: Order. The hon. Member knows quite well that that is not a point of order.
I understand that the Opposition spokesman, when winding up, was listened to in reasonable silence. I hope that the Minister will receive the same courtesy.

Mr. Foot: The right hon. Gentleman, of all people in this country, has less right to criticise that figure of 26·4 per cent. than anyone else. I remind the right


hon. Gentleman of what he said during the General Election. It happened on other occasions, but it bears very directly on the matter. The Leader of the Opposition spends most of his time boasting about the truth he is supposed to have told at the General Election. However, when I come to the point of what he said about wages, he is not so eager to hear. During the General Election, the right hon. Gentleman said that wages settlements were being made at a rate of 40 per cent. That was wrong. The right hon. Gentleman said we had experienced some months of settlements on the 40 per cent. scale. Therefore, on that basis, the Government have made a reduction to 26 per cent.— on the right hon. Gentleman's own figure.
The right hon. Gentleman went up and down the country making the claim that wage settlements were taking place on a 40 per cent. basis. When it was pointed out to him that figure was based on the most absurd statistical fallacy, he continued to make the same suggestions and to pretend that it was a legitimate figure. It was very dangerous for anyone to say that. It is no good the right hon. Gentleman grinning now. That was a very dangerous thing to do because it led people to believe that settlements were being made on a 40 per cent. basis, and he could have given great encouragement to the inflationary situation.
The right hon. Gentleman did exactly the same today by suggesting—and I asked him to withdraw it—that the National Institute's statement that settlements were being made within the guidelines by anticipating future increases in prices, as well as by taking into account keeping up with cost of living increases which had already taken place.
I pointed out to the right hon. Gentleman that the National Institute was wrong on both counts. It is not true that the trade union guidelines say anything of the sort. Indeed, it is not true that settlements are being made on that basis. Only one or two settlements of which I know would come within that category. The overwhelming bulk of settlements covering large numbers of people since the lifting of the pay controls defy that proposition. Therefore it is wrong of the right hon. Gentleman now to spread the story again, after he has been corrected. It

may be that the right hon. Gentleman was deceived by—

Mrs. Kellett-Bowman: rose—

Mr. Thorpe: rose—

Mr. Speaker: I am not sure to whom the right hon. Gentleman is giving way.

Mr. Foot: Ladies first. I give way first to the hon. Member for Lancaster (Mrs. Kellett-Bowman) and then to the right hon. Member for Devon, North (Mr. Thorpe).

Mrs. Kellett-Bowman: Will the right hon. Gentleman say which of the wage settlements in his opinion have exceeded the social contract?

Mr. Foot: I have called attention to some of them—the ones which I thought had exceeded it with the least excuse— and I have already mentioned other cases, too. What I am saying is that—[Interruption.] If the hon. Lady had followed these matters a little more closely, she would have known that I had mentioned them on several occasions.

Mrs. Kellett-Bowman: The Secretary of State does not even answer questions, let alone the debate.

Mr. Thorpe: Is the right hon. Gentleman aware that the House will be grateful, as will the country, if he can help us on this one matter relating to the future? He has mentioned 18 per cent. as being the increase in prices and 26 per cent. for wage increases last year. He said that, of that 26 per cent., in his view at least half was either inherited or for special reasons. Accepting that for the sake of argument, is not a rate of increase of that kind one which the economy cannot sustain in the future? If that rate of inflation were sustained, would not we move into really desperate recession?

Mr. Foot: I agree that if that rate of inflation were sustained, we should face increasingly grave difficulties. I acknowledge that fully. From the very beginning. I have never sought to minimise the figures, as I said at the beginning.
I shall come in a moment to the way in which this House should look upon these matters. But when some hon. Members headed by the Leader of the Opposition have gone out of their way to misrepresent what is happening and


why it has occurred, we are entitled to put matters right, especially when the right hon. Gentleman also seeks to assist the situation, if that is his purpose, by attacking the Conciliation and Arbitration Service which we have established. I do not know whether the right hon. Gentleman thinks that that is helping the situation.
The Conciliation and Arbitration Service was established by the Government, but we sought to secure the co-operation of both sides of industry in establishing it. The CBI was consulted about it and has representatives on its board. We believe that one of the essentials to restoring respect for arbitration was that we should have a board which was independent of the Government. That was our purpose, and we have sought to carry it out. We believe that the increasing part which the Conciliation and Arbitration Service will play in settling disputes derives precisely from its independence. That is a proposition which not only was put to us by the trade unions but has been agreed by the employers as well.
I hope that the Leader of the Opposition will withdraw his misleading remarks both about the previous settlements and about the Conciliation and Arbitration Service. If he will not do the first, I hope that he will at least have the courtesy to do the second.

Mr. Heath: Will the Secretary of State explain how to quote the words of the chairman of the Conciliation and Arbitration Service is to make an attack upon it? When the chairman of that service says that he and his colleagues do not care at what rate they settle as long as there is a settlement, and I quote the words, how is that an attack on him? He has admitted it himself.

Mr. Foot: The right hon. Gentleman should not misquote himself. Having selectively quoted from the chairman of the Conciliation and Arbitration Service, he went on to say that this was the embodiment of the principle of peace at any price. It is not so. If the right hon. Gentleman thinks that, he should take his complaint to the employers' representatives who sit on the board of the Conciliation and Arbitration Service, and who are seeking to solve these problems, instead of pouring abuse on a Govern-

ment who are seeking to re-establish the authority of arbitration.
The Leader of the Opposition went on to say how, therefore, we should proceed from our present situation. First, we say that it is necessary to understand not only the failures of the wage negotiations under the social contract, but the successes. If we were able to secure settlements on the basis of the guidelines laid down in the social contract over the coming six to eight months, we would be playing a major part in curbing inflation.
If anybody wants to study the matter seriously, this is the fact of it. The real test of the social contract depends on what will happen in the six to eight months ahead. It depends whether, for example, we can get a settlement in the mining industry which sustains the rights and general position of miners compared with other workers, which they achieved in the settlement earlier this year, within the guidelines of the social contract. We believe that it is better to proceed on those lines and to work on that basis. That is why we appeal to the miners to support the social contract. It is better to do that than to return to the statutory policy of the Conservative Government or the statutory policy advocated by the Liberal Party.
If right hon. and hon. Gentleman had listened to the debate more carefully, as I have, and heard the speech by my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) and the speeches of other hon. Members, they would have heard about the operation of the statutory policy which I have observed from practical experience. I was opposed to the statutory policy on theoretical grounds when. I went to the Department of Employment. Believe me, there are many practical grounds why a return to any statutory system would be a disaster for this country. Certainly that is not the policy of this Government.

Mr. Julian Amery: The right hon. Gentleman has spoken in firm terms about a statutory incomes policy. Are we to understand that he would resign from office rather than be party to implementing such a policy?

Mr. Foot: I have made clear in this House and during the election, and I


make clear again, my absolute abhorrence of any idea of returning to a statutory incomes policy. I believe that to return to a statutory policy would soon bring us back to the catastrophes of last winter. Indeed, had it not been for the fact that we had the possibility of escaping from the rigid statutory controls left by the Leader of the Opposition, we would not merely have been unable to solve the mining dispute but would have been landed in one intractable dispute after another.
It would be wrong for anyone to suggest that we should return to such a statutory policy. We must make it clear to the people of this country that we are determined to carry through the policy of consent upon which we were elected. We do not propose to abandon that policy in a somersault, as the Leader of the Opposition did after having promised not to have a statutory policy. [HON. MEMBERS: "It was done in 1966."] It was done in 1966 and it failed then. It failed under the Tory Government. The difference between us—

Sir Paul Bryau: Would the right hon. Gentleman resign rather than introduce a statutory incomes policy?

Mr. Foot: I have made clear my attitude on this matter, and I do not believe there is any misapprehension about it in any quarter.
The right hon. Gentleman the Leader of the Opposition led this country to disaster last winter precisely because he applied the policy that he is advocating, but he does not have the courage of conviction that one finds in the Leader of the Liberal Party. The Opposition are advocating a return to the policies which contributed so disastrously to the situation which the Labour Government inherited on taking office, and we shall not follow them.
The right hon. Gentleman would have benefited from hearing the speech of his hon. Friend the Member for Oswestry (Mr. Biffen). The hon. Gentleman said that the language of economics by itself would not be sufficient to solve the country's crisis, and I agree with that proposition. I agree also with those who oppose the idea of a one-party State by consent or anything of that sort. I am opposed to any idea that we can solve the country's

problems by merging our policies and attitudes into one indiscriminate blur. We do not propose to abandon the National Enterprise Board, the planning agreements, and all the measures that we set out in our election manifesto for dealing in particular—

Mr. Tapsell: On a point of order, Mr. Speaker. Is there any precedent in the whole of British parliamentary history for a major censure debate on the economy of the country not being attended by the Prime Minister?

Mr. Speaker: Order. The hon. Member must sit down when I am standing up, or else leave the Chamber. The content of a speech is not a matter for the Chair.

Mr. Tapsell: Further to that point of order, Mr. Speaker.

Mr. Speaker: Order. If this is a point of order with regard to the content of a speech—

Mr. Tapsell: It is not. I did not refer to the content of the Minister's speech. I referred to the absence of the Prime Minister and the unprecedented example that has been set.

Mr. Speaker: Order. That again is not a matter for the Chair.

Mr. Foot: I am not sure how many bogus points of order the hon. Gentleman is entitled to make, but he has made three or four and he does not seem to have contributed to the success of the debate.

Mr. Donald Stewart: The right hon. Gentleman has taken up a lot of time answering the attacks from the Opposition benches. In the time remaining, will he say whether there is a crisis, and if there is, what the Government are going to do about it?

Mr. Foot: I have been dealing with the matters that were raised during the debate, which is what I was asked to do.
The determination of the Government is to enlist the support particularly of the trade union movement but also of others throughout the country to carry out by consent and democratic means the proper way of overcoming this crisis, and not to abandon that policy because people lose


their nerve, patience and determination in the midst of it. We propose to carry our policy through by the only democratic means by which it can be done.

Question put, That this House do now adjourn: —

The House divided: Ayes 280, Noes 301.

Division No. 40.1
AYES
[10.0 p.m.


Adley, Robert
Gardiner, George (Reigate)
Loveridge, John


Aitken, J. W. P.
Gardner, Edward (S. Fylde)
Luce, Richard


Alison, Michael
Gilmour, Rt Hon Ian (Chesham)
MacCormick, lain


Amery, Rt Hon Julian
Gilmour, Sir John (East Fife)
McCrindle, Robert


Arnold, Tom
Glyn, Dr Alan
Macfarlane, Neil


Atkins, Rt Hon H. (Spelthorne)
Godber, Rt Hon Joseph
MacGregor, John


Awdry, Daniel
Goodhart, Philip
Macmillan, Rt Hon M. (Farnham)


Bain, Mrs Margaret
Goodhew, Victor
McNair-Wilson, M. (Newbury)


Baker, Kenneth
Goodlad, A.
McNair-Wilson, P. (New Forest)


Banks, Robert
Gorst, John
Madel, David


Beith, A. J.
Gow, l, (Eastbourne)
Marshall, Michael (Arundel)


Bell, Ronald
Gower, Sir Raymond (Barry)
Marten, Neil


Bennett, Dr Reginald (Fareham)
Grant, Anthony (Harrow C.)
Mates, Michael


Benyon, W. R.
Gray, Hamish
Mather, Carol


Berry, Hon Anthony
Grieve, Percy
Maude, Angus


Biffen, John
Griffiths, Eldon
Maudling, Rt Hon Reginald


Biggs-Davison, John
Grimond, Rt Hon J.
Mawby, Ray


Blaker, Peter
Grist, Ian
Maxwell-Hyslop, Robin


Body, Richard
Grylls, Michael
Mayhew, Patrick


Boscawen, Hon Robert
Hall, Sir John
Meyer, Sir Anthony


Boyson, Dr Rhodes (Brent)
Hall-Davis, A. G. F.
Miller, Hal (Bromsgrove)


Braine, Sir Bernard
Hamilton, Michael (Salisbury)
Mills, Peter


Brittan, Leon
Hampson, Dr Keith
Miscampbell, Norman


Brotherton, Michael
Hannam, John
Mitchell, David (Basingstoke)


Bryan, Sir Paul
Harrison, Sir Harwood (Eye)
Moate, Roger


Buchanan-Smith, Alick
Harvie Anderson, Rt Hon Miss
Monro, Hector


Buck, Antony
Hastings, Stephen
Montgomery, Fergus


Budgen, Nick
Havers, Sir Michael
Moore, John (Croydon C)


Bulmer, Esmond
Hawkins, Paul
More, Jasper (Ludlow)


Burden, F. A.
Hayhoe, Barney
Morgan, Geraint


Carlisle Mark
Heath, Rt Hon Edward
Morgan-Giles, Rear-Admiral


Carr, Rt Hon Robert
Henderson, Douglas
Morris, Michael (Northants)


Chalker, Mrs Lynda
Heseltine, Michael
Morrison, Charles (Devizes)


Channon Paul
Hicks, Robert
Morrison, Peter (Chester)


Churchill, W. S.
Higgins, Terence L.
Mudd, David


Clark, Alan (Plymouth, S)
Holland, Philip
Neave, Airey


Clark, William (Croydon, S.)
Hooson, Emlyn
Nelson, Anthony


Clarke, Kenneth (Rushcliffe)
Hordern, Peter
Neubert, Michael


Cockcroft, John
Howe, Rt Hon Sir Geoffrey
Newton, Tony


Cooke, Robert (Bristol W)
Howell, David (Guildford)
Normanton, Tom


Cope, John
Howell, Ralph (North Norfolk)
Nott, John


Cormack, Patrick
Howells, Geraint (Cardigan)
Onslow, Cranley


Corrie, John
Hunt, John
Oppenheim, Mrs Sally


Costain, A. P.
Hurd, Douglas
Page, Rt Hon R. Graham (Crosby)


Crawford, Douglas
Hutchison, Michael Clark
Page, John (Harrow West)


Critchley, Julian
Irvine, Bryant Godman (Rye)
Pardoe, John


Crouch, David
Irving, Charles (Cheltenham)
Pattie, Geoffrey


Crowder, F. P.
James, David
Penhaligon, David


Davies, Rt Hon J. (Knutsford)
Jenkin, Rt Hon Patrick (Redbr.)
Percival, Ian


Dean, Paul (N. Somerset)
Jessel, Toby
Peyton, Rt Hon John


Dodsworth, Geoffrey
Johnson Smith, G. (E. Grlnstead)
Pink, R. Bonner


Douglas-Hamilton, Lord James
Johnston, Russell (Inverness)
Price, David (Eastleigh)


Drayson, Burnaby
Jones, Arthur (Daventry)
Prior, Rt Hon James


du Cann, Rt Hon Edward
Jopling, Michael
Pym, Rt Hon Francis


Durant, Tony
Joseph, Rt Hon Sir Keith
Raison, Timothy


Dykes, Hugh
Kaberry, Sir Donald
Rathbone, Tim


Eden, Rt Hon Sir John
Kellett-Bowman, Mrs Elaine
Rawlinson, Rt Hon Sir Peter


Edwards, Nicholas (Pembroke)
Kershaw, Anthony
Rees, Peter (Dover &amp; Deal)


Elliott, Sir William
Kilfedder, James
Rees-Davies, W. R.


Emery, Peter
Kimball, Marcus
Reid, George


Ewing, Mrs Winifred (Moray)
King, Evelyn (South Dorset)
Renton, Rt Hn Sir D. (Hunts.)


Eyre, Reginald
King, Tom (Bridgwater)
Renton, Tim (Mid-Sussex)


Fairbairn, Nicholas
Kirk, Peter
Rhys Williams, Sir Brandon


Fairgrieve, Russell
Kitson, Sir Timothy
Ridsdale, Julian


Farr, John
Knight, Mrs Jill
Rifkind, Malcolm


Fell, Anthony
Knox, David
Rippon, Rt Hon Geoffrey


Finsberg, Geoffrey
Lamont, Norman
Roberts, Michael (Cardiff N.W.)


Fisher, Sir Nigel
Lane, David
Roberts, Wyn (Conway)


Fletcher, Alex (Edinburgh N.)
Langford-Holt, Sir John
Ross, Stephen (Isle of Wight)


Fletcher-Cooke, Charles
Latham, Michael (Melton)
Rossi, Hugh (Hornsey)


Fookes, Miss Janet
Lawrence, Ivan
Rost, Peter (SE Derbyshire)


Fowler, Norman (Sutton C.)
Lawson, Nigel
Royle, Sir Anthony


Fox, Marcus
Le Marchant, Spencer
St. John-Stevas, Norman


Fraser, Rt Hon H. (Stafford &amp; St.)
Lewis, Kenneth (Rutland)
Scott, Nicholas


Fry, Peter
Lloyd, Ian (Havant)
Scott-Hopkins, James




Shaw, Giles (Pudsey)
Steen, Anthony (Liverpool)
Wakeham, John


Shaw, Michael (Scarborough)
Stewart, Donald (Western Isles)
Walder, David (Clitheroe)


Shelton, William (Lambeth St.)
Stewart, Ian (Hitchin)
Walker, Rt Hon P. (Worcester)


Shepherd, Colin
Stokes, John
Walker-Smith, Rt Hon Sir Derek


Shersby, Michael
Tapsell, Peter
Wall, Patrick


Silvester, Fred
Taylor, R. (Croydon NW)
Walters, Dennis


Sims, Roger
Taylor, Teddy (Glasgow C.)
Watt, Hamish


Sinclair, Sir George
Tebbit, Norman
Weatherill, Bernard


Skeet, T. H. H.
Temple-Morris, P.
Wells, John


Smith, Cyril (Rochdale)
Thatcher, Rt Hon M.
Welsh, Andrew


Smith, Dudley (Warwick)
Thomas, Rt Hon P. (Barnet)
Whitelaw, Rt Hon William


Speed, Keith
Thompson, George
Wiggln, Jerry (Weston-s-Mare)


Spence, John
Thorpe, Rt Hon Jeremy (Devon)
Winterton, Nicholas


Spicer, James (W. Dorset)
Townsend, Cyril D.
Wood, Rt Hon Richard


Spicer, Michael (S. Worcester)
Trotter, Neville
Young, Sir George (Ealing)


Sproat, lain
Tugendhat, Christopher



Stainton, Keith
van Straubenzee, W. R.
TELLERS FOR THE aYES:


Stanbrook, Ivor
Vaughan, Dr Gerard
Mr. Adam Butler and


Steel, David (Roxburgh)
Wainwright, Rihart (Coine V)
Mr. John Stradling Thomas.




NOES


Abse, Leo
Deakins, Eric
Hoyle, Douglas (Nelson)


Allaun, Frank
de Freltas, Rt Hon Sir Geoffrey
Huckfield, Leslie


Anderson, Donald
Delargy, Hugh
Hughes, Rt Hon C. (Anglesey)


Archer, Peter
Dell, Rt Hon Edmund
Hughes, Mark (Durham)


Armstrong, Ernest
Dempsey, James
Hughes, Robert (Aberdeen N.)


Ashley, Jack
Doig, Peter
Hughes, Roy (Newport)


Ashton, Joe
Douglas-Mann, Bruce
Hunter, Adam


Atkins, Ronald (Preston N)
Duffy, A. E. P.
Irvine, Rt Hon Sir A. (L'pool)


Atkinson, Norman
Dunn, James A.
Irving, Rt Hon S. (Dartford)


Bagier, Gordon A. T.
Dunnett, Jack
Jackson, Colin (Brlghouse)


Barnett, Guy (Greenwich)
Dunwoody, Mrs. Gwyneth
Jackson, Miss Margaret (Lincoln)


Barnett, Joel (Heywood)
Eadie, Alex
Janner, Greville


Bates, Alf
Edelman, Maurice
Jay, Rt Hon Douglas


Bean, Robert E.
Edge, Geoffrey
Jeger, Mrs Lena


Benn, Rt Hn Anthony Wedgwood
Edwards, Robert (Wolv. S.E.)
Jenkins, Hugh (Wandsworth)


Bennett, Andrew (Stockport N)
Ellis, John (Brigg &amp; Scun)
Jenkins, Rt Hon Roy (B'ham, St)


Bidwell, Sydney
Ellis, Tom (Wrexham)
John, Brynmor


Bishop, Edward
English, Michael
Johnson, James (Kingston, W.)


Blenkinsop, Arthur
Ennals, David
Johnson, Walter (Derby S)


Boardman, H.
Evans, loan L. (Aberdare)
Jones, Alec (Rhondda)


Booth, Albert
Evans, John (Newton)
Jones, Barry (East Flint)


Boothroyd, Miss Betty
Ewing, Harry (Stirling)
Jones, Dan (Burnley)


Bottomley, Rt Hon Arthur
Faulds, Andrew
Judd, Frank


Boyden, James (Bish Auck.)
Fernyhough, Rt Hon E.
Kaufman, Gerald


Bradley, Tom
Fitch, Alan (Wigan)
Kerr, Russell


Bray, Dr Jeremy
Fitt, Gerard (Belfast)
Kilroy-Silk, Robert


Broughton, Sir Alfred
Flannery, Martin
Kinnock, Nell


Brown, Hugh D. (Glasgow Pr.)
Fletcher, Raymond (Ilkeston)
Lambie David


Brown, Robert C. (Newcastle)
Fletcher, Ted (Darlington)
Lamborn, Harry


Buchanan, Richard
Foot, Rt, Hon Michael
Lamond, James


Butler, Mrs Joyce (Haringey)
Ford, Ben T.
Latham, Arthur (Paddlngton)


Callaghan, Rt Hon J. (Cardiff S.)
Forrester, John
Leadbitter, Ted


Callaghan, Jim (Middleton &amp; P.)
Fowler, Gerald (The Wrekin)
Lee, John


Campbell, Ian
Fraser, John (Lambeth, N)
Lestor, Miss Joan (Eton &amp; Slough)


Cant, R. B.
Freeson, Reginald
Lever, Rt Hon Harold


Carmichael, Nell
Garrett, John (Norwich S.)
Lewis, Arthur (Newham N.)


Carter, Ray
Garrett, W. E. (Wallsend)
Lewis, Ron (Carlisle)


Carter-Jones, Lewis
George, Bruce
Lipton, Marcus


Cartwright, John
Gilbert, Dr John
Litterick, Tom


Castle, Rt Hon Barbara
Ginsburg, David
Lomas, Kenneth


Clemitson, I. M.
Golding, John
Loyden, Eddie


Cocks, Michael (Bristol S.)
Gould, Bryan
Luard, Evan


Coleman, Donald
Gourlay, Harry
Lyon, Alexander (York)


Colquhoun, Mrs Maureen
Graham, Ted
Lyons, Edward (Bradford W)


Concannon, J. D.
Grant, George (Morpeth)
Mabon, Dr J. Dickson


Conlan, Bernard
Grant, John (Islington C.)
McCartney, Hugh


Cook, Robin F. (Edin C)
Grocott, Bruce
McElhone, Frank


Corbett, Robin
Hamilton, James (Bothwell)
MacFarquhar, R.


Cox, Thomas (Wands, Toot)
Hamilton, W. W. (Central Fife)
McGuire, Michael (Ince)


Craigen, J. M. (Glasgow M.)
Hamling, William
Mackenzie, Gregor


Crawshaw, Richard
Hardy, Peter
Mackintosh, John P.


Cronin, John
Harper, Joseph
Maclennan, Robert


Crosland, Rt Hon Anthony
Harrison, Walter (Wakelield)
McMillan, Tom (Glasgow C.)


Cryer, Bob
Hart, Rt Hon Judith
Madden, Max


Cunningham, G. (Islington S.)
Hattersley, Roy
Magee, Bryan


Cunningham, Dr J. (Whiteh.)
Hatton, Frank
Mahon, Simon


Dalyell, Tarn
Hayman, Mrs Helene
Mallalieu, J. P. W.


Davidson, Arthur
Healey, Rt Hon Denis
Marks, Ken


Davies, Bryan (Enfield N.)
Heffer, Eric S.
Marquand, David


Davles, Denzll (Llanelli)
Hooley, Frank
Marshall, Dr Edmund (Goole)


Davies, Ifor (Gower)
Horam, John
Marshall, Jim (Leicester)


Davis, S. Clinton (Hackney C.)
Howell, Denis (B'ham, Sm H)
Mason, Rt Hon Roy







Meacher, Michael
Roberts, Gwilym (Cannock)
Thomas, Ron (Bristol NW)


Mellish, Rt Hon Robert
Robertson, John (Paisley)
Thorne, Stan (Preston)


Mikardo, Ian
Roderick, Caerwyn
Tierney, Sydney


Millan, Bruce
Rodgers, George (Chorley)
Tinn, James


Miller, Dr M. (E. Kilbride)
Rodgers, William (Teesside)
Tomlinson, John


Miller, Mrs Millie (Redbridge)
Rooker, J. W.
Torney, Tom


Mitchell, R. C. (Soton, Itchen)
Roper, John
Tuck, Raphael


Molloy, William
Rose, Paul B.
Urwin, T. W.


Moonman, Eric
Ross, Rt Hon W. (Kilm'nock)
Varley, Rt Hon Eric G.


Morris, Alfred (Wythenshawe)
Rowlands, Ted
Wainwright, Edwin (Dearne V.)


Morris, Charles R. (Openshaw)
Ryman, John
Walden, Brian (B'ham, L'dyw'd)


Morris, Rt Hon John (Aberavon)
Sandelson, Neville
Walker, Harold (Doncaster)


Mulley, Rt Hon Frederick
Sedgemore, B.
Walker, Terry (Kingswood)


Murray, Ronald King
Selby, Harry
Ward, Michael


Newens, Stanley
Shaw, Arnold (Redbridge, ilf.)
Watkins, David


Noble, Mike
Sheldon, Robert (Ashton-u-Lyne)
Watkinson, John


Oakes, Gordon
Shore. Rt Hon Peter
Weetch, Ken


Ogden, Eric
Short, Rt Hon Edward (Newcastle C)
 Weitzman, David


O'Halloran, Michael
short, Mrs Renée (Wolv NE)
Wellbeloved, James


O'Malley, Brian
Silkin, Rt Hn John (Lewish.)
White, Frank R. (Bury)


Orbach, Maurice
Silkin, Rt Hn S. C. (Southwk.)
White, James (Glasgow, P)


Orme, Rt Hon Stanley
Sillars, James
Whitehead, Phillip


Ovenden, John
Silverman, Julius
Whitlock, William


Owen, Dr David
Skinner, Dennis
Willey, Rt Hon Frederick


Padley, Walter
Smith, John (N. Lanarkshire)
Williams, Alan (Swansea)


Palmer, Arthur
Snape, Peter
Williams, Alan, Lee (Haver'g)


Park, George
Spearing, Nigel
Williams, Rt Hn Shirley (Hertford)


Parker, John
Spriggs, Leslie
Williams, W. T. (Warrington)


Parry, Robert
Stallard, A. W.
Wilson, Alexander (Hamilton)


Peart, Rt Hon Fred
Stewart, Rt Hn Michael (H'smith, F)
 Wilson, Rt Hon H. (Huyton)


Pendry, Tom
Stoddart, David
Wilson, William (Coventry S.E.)


Perry, Ernest
Stott, Roger
Wise, Mrs Audrey


Phipps, Dr Colin
Strang, Gavin
Woodall. Alec


Prentice, Rt Hon Reg
Strauss, Rt Hon G. R.
Woof, Robert


Price, William (Rugby)
Summerskill, Hon Dr Shirley
Wrigglesworth, Ian


Radice, Giles
Swain, Thomas
Young, David (Bolton E.)


Rees, Rt Hon Merlyn (Leeds S.)
Taylor, Mrs Ann (Bolton W)
TELLERS FOR THE NOES:


Richardson, Miss Jo
Thomas, Jeffrey (Abertillery)
Mr. J. D. Dormand and


Roberts, Albert (Normanton)
Thomas, Mike (Newcastle)
Mr. Laurie Pavitt.

Question accordingly negatived.

Orders of the Day — BUSINESS OF THE HOUSE

Ordered,
That the Motion relating to Financial Assistance for Industry (British Leyland Motor Corporation Limited) may be proceeded with at this day's Sitting, though opposed, until half-past Twelve o'clock.—[Mr. Walter Johnson.]

Orders of the Day — BRITISH LEYLAND MOTOR CORPORATION LIMITED

10.14 p.m.

The Secretary of State for Industry (Mr. Anthony Wedgwood Benn): I beg to move,
That this House authorises the Secretary of State to pay or undertake to pay by way of financial assistance under section 8 of the Industry Act 1972 in respect of a guarantee or guarantees to be given to the bankers of British Leyland Motor Corporation Limited and any of its subsidiaries covering borrowing facilities made available by the bankers to those companies, insofar as the amount paid or undertaken to be paid under the guarantee or guarantees is in excess of £5 million but does not exceed £50 million.
If the House will allow me, I was intending, in presenting the motion, to be as brief as possible in conveying the information which the House will need to have and then, if the House is ready to give its assent, to seek to intervene at the end of the debate in order to deal with questions which may be raised by hon. Members.
In my statement on 6th December I informed the House that discussions had been taking place with British Leyland about its short-term requirements for working capital and its longer-term investment programme. I indicated that the Government would seek the approval of Parliament for a guarantee to British Leyland's bankers for the short-term working capital required over and above existing facilities. The bankers have expressed their willingness to provide these additional facilities, subject to the guarantees. The motion seeks authority for the Government to enter into commitments in this respect.
The Government wish to provide these guarantees because of the company's position in the economy as a leading exporter and of its importance to employment, both directly and through the

many firms which are dependent on it. The arrangements proposed will enable the company's needs to be met without interruption while the Government examine the company's request for longer-term support for its investment programme.
I am sure that all Members of the House are aware of the difficulties which have beset not only British Leyland but the motor vehicle industry in general since the end of last year. Because of higher fuel costs resulting from the dramatic rise in the price of oil, the increased cost of materials, economic uncertainties and inflation, major motor car markets have declined on an almost unprecedented scale throughout the world. Widespread redundancies, short-time working or lay-offs have been reported by nearly all major motor car manufacturers. Inevitably, sales, revenue and profits have decreased sharply, and the competition in the industry has become increasingly fierce.
It is against that background that British Leyland approached the Government early in December for support for its longer-term programme. I had exploratory discussions with Lord Stokes and his colleagues on 3rd December. Previously there had been regular discussions over a long period between senior officials of my Department and the company. But, as the Chairman of British Leyland has indicated in his statement today, it was only very recently made evident that the investment programme would have to be cut back to an undesirable extent or money obtained from other than commercial sources.
The company, in common with the rest of industry, also suffered from the disruptive effects of the three-day working week. British Leyland has also lost many days through industrial disputes. It would be wrong of me to ignore the effects which all these events have had on the company's performance. In spite of declining markets, the products of British Leyland are, however, in demand, and I am sure that all hon. Members will join me when I express the hope that the Government's present initiative will evoke a constructive response from the workers and the management and, indeed, all those who work for this enterprise, and that through good industrial relations


the company will be able to realise its full potential in the period ahead.
The House will wish to know more of the arrangements that have been made to advise the Government on British Leyland's situation and prospects. I have already announced that the high-level team will be led by Sir Don Ryder and I am now able to inform the House of the other members of his team. It includes two members from the Industrial Development Advisory Board, which has statutory responsibilities under the Industry Act 1972. They are Mr. R. A. Clark, who is the Chairman of the IDAB and who will, as Chief Executive and Deputy Chairman of Hill Samuel and Company Limited, bring wide banking experience to the team, and Mr. Harry Urwin, a senior official of the Transport and General Workers' Union, who has a great deal of first-hand knowledge of the industry. Mr. F. S. McWhirter, who is a chartered accountant and a partner in the firm of Peat Marwick Mitchell and Company, has agreed to serve and he will provide expert accountancy advice. Production expertise will be provided by Mr. S. J. Gillen, formerly the Chairman and Chief Executive of Ford of Europe Inc., who completes the team.
I think that the House will wish me to express its thanks to these gentlemen for their agreement to undertake this very important assignment.
The team's remit is to conduct, in consultation—I stress that—with the corporation and the trades unions, an overall assessment of BLMC's present situation and future prospects, covering corporate strategy, investment, markets, organisation, employment, productivity, management-labour relations, profitability and finance; and to report to the Government.
The investigation will be given the highest priority, but it is clearly a substantial task which will take a few months to complete. No specific time scale has been imposed but the report is expected in the spring of 1975. It will not be possible to publish the report because it will obviously contain information of great commercial value to British Leyland's competitors. I shall, however, report to the House on its principal

recommendations and their financial implications as soon as I am able to do so.
It is my intention that the conditions of the guarantee will require that the company shall co-operate fully with the review team, and that during the period of the guarantee while the review is taking place all major decisions proposed by the board will be subject to agreement with the Government. Responsibility for negotiating pay settlements will continue to rest with the board, but the Government will expect the board of British Leyland to reach settlements which are consistent with the financial situation now facing the company, and within the guidelines given to negotiators by the Trades Union Congress, as welcomed by the Government—

Mr. David Stoddart: Can my right hon. Friend answer a point regarding negotiations? He may know that some delicate negotiations are going on within the industry about pension schemes. Can he tell me whether these negotiations will be affected? Can he give an assurance that these negotiations will be able to proceed without interference?

Mr. Benn: I am aware of the point my hon. Friend raises, because it has been raised with me by other hon. Members. I thought that it might arise in questions and I would have dealt with it later, but I am happy to deal with it now. I should explain to the House that the present position is that until the House of Commons, in its wisdom, has given its view and its decision on this motion, and until the conditions to which I have just referred—which it is the Government's intention to secure— have been met, my relationship, as the responsible Minister, with the company has no official character. But clearly the negotiations that are in progress would continue to be the responsibility of the company, subject to what I have just said prior to my hon. Friend's intervention. I think that perhaps many questions similar to that posed by my hon. Friend will arise and it might be more helpful if I try to deal with them all together later. I appreciate that many hon. Members are concerned.
I conclude by saying that British Leyland is a great British company, made up


of a highly-skilled work force which has made, and I hope and believe will continue to make, a notable contribution to the British economy. The company needed Government help and I believe it right to have offered the facilities for which I seek the consent of the House.
But certainly in our approach to the matter—I hope the House will reflect this in the debate—we should not be looking for any scapegoats. Rather we should see this as an opportunity for those who work in British Leyland—I am speaking of the management and the trade unions —who know the firm very well and who have worked with it for a long time, to work out, with their knowledge, their own proposals. I hope that those workers will also feel that the review body which I have announced tonight, in working in consultation with them, will be able to make use of this knowledge to find the right answer to the problems that confront the company. The real assets which we are discussing tonight are the people who work in British Leyland, and I hope that the House approaches the debate in this spirit.

10.25 p.m.

Mr. Michael Heseltine: I am sure that the House will feel that the Secretary of State's concentration on the events of the past 12 months does not do justice to the depth of examination into the affairs of British Leyland which one hopes the inquiry will undertake. There are longer-term and more difficult issues to be dealt with rather than the particular difficulties, real though they are, which have beset the entire world motor manufacturing industry over the past 12 months or so.
The truth is that not all other companies throughout the world have had to go to their Governments. Some have and some have not, but it is important to draw the distinction that there are motor manufacturing companies which have so far been able to react to the circumstances and remain viable. I believe that the inquiry which the right hon. Gentleman has announced will have to probe over a far longer period than the past 12 months and look into matters which were inherent in the whole BLMC structure before it was brought together as a result of the intervention of the IRC in 1968.
I am sure that the membership of the team which the right hon. Gentleman has

announced does justice to the measure of public concern in this matter, but there is a question to be asked about the trade union representative who has been invited to take part. I believe that it is necessary for there to be a trade union representative, but I wonder whether the Secretary of State was wise to choose a member of a union which must have a deep involvement in British Leyland. The Transport and General Workers' Union is a major constituent representative of the work force in BLMC, and I believe that the other unions involved will be concerned when they know that their interests will be considered by a member of a union with which they are in partnership or in rivalry, as the case may be.

Mr. Benn: Before he continues on that line about Harry Urwin, perhaps the hon. Gentleman will confirm that Mr. Urwin was appointed by his own administration to the IDAB, and, had the Government not thought it right to appoint a special body in this case, the provisions of the Conservative Industry Act would have referred the Leyland case to the IDAB, and Harry Urwin as a member of it would have participated in the inquiry.

Mr. Heseltine: I am sure that the House will in no way misunderstand the point which I am making. [HON. MEMBERS: "We understand it."] I believe that Mr. Urwin is an extremely valuable member of the Industrial Development Advisory Board under the Industry Act, and I have heard nothing but praise for the contribution which he has made. However, there are deep issues involving the unions in British Leyland, and I just wonder whether it might have been wiser for the Secretary of State in this specific case to appoint a union representative who does not have such a close involvement in one of the 16 unions concerned in that organisation.
As I have said, the issues here go back much further than the Secretary of State suggested. Specifically, they go back to the moment at which the IRC approached Donald Stokes, then Chairman of Leyland Motors, to suggest that he should become involved in a rationalisation scheme embracing the Austin-Morris operation.
At that point two significant events took place. First, there developed the widespread belief that the Government


had decided to become involved in the motor industry in the form in which it then existed, and that they would stand behind that industry in that form, come hell or high water. The reality is that, having taken that standpoint, we shall never know in this country what alternatives might have emerged for the motor industry and its employees if the rationalisation brought about by the IRC at that time had not taken place.
For example, we do not know, and we cannot know, whether Britain's motor industry might not have been stronger if, instead of putting together the BLMC package and using, to an extent, the investment resources and profits of the more successful aspects of that package to maintain investment and development in the least successful aspects, we might have achieved more advantage in the national interest by concentrating on developing the successful components of BLMC as it is today, pouring investment into them and concentrating on the success which was evident at that time and which, as the figures show, has been evident consistently since BLMC came into operation.
The one thing we do know is that in all the main areas in which the company concentrates its activities there would not have been a shortage of earnings for its employees. The reality is that there were throughout this period a large number of vacancies for people with the skills employed by BLMC, and it is therefore in no way realistic to suggest that the choice was to employ these people in BLMC or see them unemployed. It is simply a question of whether they were serving themselves and the nation more effectively within the organisation that the IRC brought into being than they would have done had the IRC not intervened and if there had been a rationalisation of the industry in the normal course of events in 1967–68. The reality is that six years later we cannot know what would have happened; we can only know that there would not have been unemployment in these areas but a redeployment in some uncertain way.
Given the situation we face tonight there are only two ways in which the present problems of British Leyland can be dealt with. The first is the method of

traditional receivership. It is only fair to appreciate that that does not entail liquidation of the company, mass unemployment or anything of that sort. It simply means forcing a number of decisions to be taken now as a result of an examination in the hands of a receiver. It would retain the vast proportion of the company, which is successful, as an operating unit, at the same time seeking solutions to the company's problems.
The other alternative is the Government's suggestion of a guarantee. I believe that in all the circumstances this is the right solution to take, providing we understand the nature and the limit of the guarantee into which the House is expected to enter. It is very important that implicit in this guarantee is no automatic assumption that the Government are to move in with a substantial commitment of public resources to the company which will maintain its work force at present levels without regard to its record.
In other words, the Secretary of State is entitled to ask for a period in which the inquiry he has appointed will do its work. That is the limit of the commitment that we enter into tonight. We are not saying, and we are not being asked to say, that we shall commit ourselves to a particular form of Government intervention on a particular scale, until we have seen the report of the inquiry.
One of the greatest anxieties is that the Government, having once come into the matter, will now underwrite any degree of irresponsibility in the company's employee relationships regardless of the cost to the public purse. This matter has been widely commented upon in the Press and it is one which concerns me, representing, as I do, many of the company's employees. The fear is that this will happen in spite of all the problems which have evolved over the years, and the Secretary of State referred to some of them. These fears cannot be ignored by the House in coming to a conclusion on the report, which it seems we shall be asked to do in the course of next year.
The real problems of this company will not be solved simply by injecting public money into it. The questions arise over the level of profit, the extent of industrial disputes, the prospects in world markets for the projects on which the company is working and the manufacturing pattern for the motor industry


internationally. These questions cannot be separated from the impact of the present management on the particular group.
Those of us who heard the Secretary of State's statement tonight that the report will not be published were perhaps aware that he had already outlined his own commitment to a degree of public ownership in the structure that emerges from the report. What I do not understand is how the right hon. Gentleman can appoint an independent inquiry to examine the situation in British Leyland and, before it has agreed to serve, can have made a commitment that there will be public ownership, whatever its conclusions.
It is interesting that the right hon. Gentleman's announcement tonight should have pointed to the statutory responsibility of the advisers under the Industry Act. The reality is that no one more than the Secretary of State has ignored those set up under the Act to advise in circumstances where the Act was called into play. He has a record of Court Line, Harland and Wolff, Meriden, IPD and Scottish Newspapers, in all of which the Government ignored the advice of the industrial advisers.
The Secretary of State says that he has now set up an inquiry, the report of which will not be published, and upon which he is presumably to reach conclusions which will be presented to the House, without our being able to see the full details of the evidence submitted.

The Minister of State, Department of Industry (Mr. Eric Heffer): Would the hon. Gentleman have allowed all the workers in the shipbuilding side of Court Line to be put out of work?

Mr. Heseltine: I would have allowed the private companies which were prepared to acquire those shares to have a chance to do so.

Mr. Heffer: Answer the question.

Mr. Heseltine: The hon. Gentleman must understand that the track record of nationalised industries in causing redundancy and laying off people is in no way to be disregarded when we consider these matters. It is the delusion of Labour Members that this country can turn its back on the pressures of economic forces, which will mean that people have to move

from job to job, from location to location. We in Britain, now immersed in one of the worst economic crises of our time, cannot go on telling people that there is a way in which the Government can intervene in all circumstances to ensure that change is frustrated.

Mr. Heffer: Why, then, did not the hon. Gentleman's Government allow Rolls-Royce to collapse, with thousands of workers being put out of work? His Government would not allow that to happen. Nor would ours with Court Line. The hon. Gentleman knows it.

Mr. Heseltine: Before the take-over of Rolls-Royce 10,000 people were laid off by the private sector management. After the take-over another 10,000 were laid off in the nationalised operation. No one can look back and say that there was a realistic choice. If an industry is overmanned, whether it is in motor manufacturing or aerospace, in the public or private sector, the bankruptcy of the company will result, or the taxpayer will be called upon to bail it out.
If that is the policy with which the Government will conduct their industrial affairs, no one need look further than the Treasury Bench to understand why company after company is queueing up at Victoria Street for help. There is no ability in industry to finance its own operations within the framework of the Government's policies. That is why next year we shall face levels of unemployment which I shall be interested to hear the hon. Gentleman explain away. I understand that already the alibis are being made. But in the recent election Labour Members were not saying that there would be unemployment as a result of private enterprise—

Mr. Heffer: The hon. Gentleman should read my election address.

Mr. Heseltine: I realise that the hon. Gentleman's election address probably did not have much to do with the Labour Party manifesto.
There will be redundancies within the private sector and the public sector next year, as the pressures of the economic forces which the Government try to pretend do not exist make themselves felt on a larger scale than the hon. Gentleman has seen in this country.
The Minister of State is out of touch with what the Government seek from the inquiry. I refer him to what Sir Don Ryder said in the Investors Chronicle only last week, namely, that his aim was to see the National Enterprise Board
as a totally commercial animal, not some big Santa Claus".
The Government have appointed a man who is determined to pursue the very arguments which hon. Members opposite pretend do not exist.
But what I am concerned about is that the House will not be given the opportunity to see the detail of the report. Therefore, I have one question to ask the Secretary of State: will he achieve the agreement of the inquiring committee to the presentation to the House of the summary of its findings?
The second area about which I want to say something is the area within which the inquiry must concern itself. First, it is necessary for the inquiry to examine the use of the company's resources since the merged operation came into existence. It is necessary for us to know whether the policy which has had the effect, as the Financial Times article pointed out only a week ago, of using money from the more profitable parts of the organisation to support and encourage investment in the less successful parts was right and should be continued.
Secondly, I wish to know, and I believe the House will wish to know, what the future industrial relations policy of the company—management and trade unions —will be. Thirdly, we want to know how much money is involved and the purposes for which it will be used. It is impossible to divorce management from all these decisions, and the first purpose of the inquiry must be—and the management could wish it no other way—to examine the role of the management of the company in the past six or seven years in all these three critical areas.
One of the first questions which must be asked is why British Leyland last year made £1 million less profit than the conglomeration of the component parts made 10 years ago and why in no intervening year were the profits anywhere near as great as they were before the group was put together. Secondly, we need to know what the unions are prepared to say about

the rôle of unions and the negotiating procedures in the company. There are 400 bargaining units in British Leyland involving 16 unions. That means that on every working day between one and two new agreements or refinements of agreements must be reached. Does the House seriously believe that we should invest substantial sums of taxpayers' money in a situation of this sort which must make coherent management, no matter what the ownership of the business may be, virtually impossible?
An important question to be asked by the inquiry is, are the unions—

Mr. Heffer: The hon. Gentleman is absolutely ignorant about the trade union situation.

Mr. Heseltine: I have not come here to plead a special case. What I concern myself with is how we shall make British industry as effective as its competitors in the world and how we can survive in the modern world if we do not. We all have an overwhelming responsibility for the use of taxpayers' money. I concern myself with that, and I believe that I have as much right as the hon. Gentleman to express views on these matters.
If the unions want the company to be successful, they must give assurances, before the commitment of taxpayers' money, that the provisions and procedures of the last seven years will be dramatically changed. The chaotic industrial relations in British Leyland cannot continue.

Mr. Robert Kilroy-Silk: Bring back the Industrial Relations Act.

Mr. Heseltine: I am interested to hear the suggestion that that was caused by the Industrial Relations Act. Perhaps I may refer to a debate that took place before the hon. Member for Ormskirk (Mr. Kilroy-Silk) came to the House, when the right hon. Member for Blackburn (Mrs. Castle), referring to British Leyland, said:
to say nothing of the motor car workers in the constituency of my hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), one of my Under-Secretaries, who have welcomed the White Paper"—
the Labour White Paper—
as, at last, doing something about the chaotic industrial relations in the motor industry which keep putting them out of work."—[OFFICIAL REPORT, 3rd March 1969; Vol. 779, c. 41.]


How any Labour Member, knowing that that was said by a Labour Government spokesman about British Leyland, can try to put up a smokescreen of false laughter when we ventilate these issues on the Floor of the House passes all understanding.

Mr. Robin Corbett: Does the hon. Gentleman recall that in the opening page of the guide to the Code of Practice under the Industrial Relations Act the statement was made that the responsibility for good industrial relations rested ultimately with the management?

Mr. Heseltine: If the hon. Gentleman had been listening to my speech he would have realised that I made exactly that point. If the hon. Gentleman cares to read HANSARD in the morning, he will find that that is what I said. It is a disservice to management to pretend that it is removed from this problem. No respectable management would want to be removed from it.
How can the House remain credible when every mention of unions and management results in a series of catcalls? Unions and management are unified by a common interest in the country's prosperity. It is because Labour Members are consistently determined to divide when there is need to seek unity that we fail to find agreement on so many issues.
The Financial Times has listed year by year the cost to British Leyland of industrial disputes. It is fascinating to see that the cost was higher in 1969 than it was in 1968 and higher again in 1970. The cost fell in 1971, again in 1972 and again in 1973. In 1973 the cost of disruption through industrial disputes was the lowest since the figures were calculated in 1968. Anyone who says that a Tory Government aggravated industrial relations in British Leyland either must produce figures to refute the Financial Times figures or, better still, ask the inquiry to calculate where the greatest cost falls.
During the last financial year of British Leyland 20 per cent. of the industrial disputes took place before 1st March and 74 per cent after 1st March. Why? Because a Labour Government was returned, and the feeling spread throughout the motor industry that this was the moment to grab wage increases before

we were forced back to a statutory policy. That is why there are now more disputes in the motor industry than there have been for many years.

Mr. George Rodgers: Would the hon. Gentleman concede that, according to Lord Stokes's statement today, the loss of £16·6 million is attributable to the three-day week, which occurred during the period of the Conservative Government?

Mr. Heseltine: I have Lord Stokes's statement here. The hon. Gentleman will no doubt have read it carefully. It says that the cost of inflation is £190 million. The hon. Gentleman cannot simply blame the three-day week, when we were confronted by the miners' strike, when the miners were attempting to break a rate of inflation of 7½ per cent. We are talking now about an inflation rate of three times that level. We would have been thought prosperous if we had kept the rate of inflation down to what we had then.

Mr. John Lee: The hon. Gentleman has spent the best part of 20 minutes by inference, if not directly, attacking the trade unions. Would he come back to the purpose of the debate and say how such remarks, be they true or false, are going to assist the situation which he says he is interested in solving?

Mr. Heseltine: This is a critically important question. I know, and the House, I believe, knows, that until we get industrial relations right in the company it can never perform as effectively for the country or for its employees as we all want it to. The independent inquiry will have to find out the extent to which the structure and attitudes of the unions are now possibly out of the management's capability. That question must be answered. It cannot be divorced from the figures, which indicate the cost to the nation, but particularly to British Leyland, of that situation.
The figures show that industrial disputes since the company came into existence have cost about £100 million, every penny of which could have been turned into sales because the demand for its products at the time was such that it could have sold the cars. We cannot consider whether we should give a £50 million guarantee to tide the company over without also considering that, over the last


six years, more than £100 million in sales has been lost through industrial disputes. We cannot avoid that issue.
The question before us is whether we should give the Government the opportunity to allow their independent inquiry to take place, as opposed to allowing a more traumatic situation to overwhelm the company. I believe that we should support the concept of an inquiry. But it is important that, in agreeing, we should see it as a holding operation when we come later to the point at which we reach a decision.
We shall have to see whether there has been, first, a realistic assessment of what the company can expect to achieve in future; secondly, whether the present management can carry that out; thirdly, whether the unions are prepared on their part to make the sort of commitments that are necessary to bring about the proper operation of the company. It is a holding operation, no more and no less.

10.54 p.m.

Mr. Maurice Edelman: I will not follow the hon. Member for Henley (Mr. Heseltine) in the more historically contentious part of this speech. My purpose is to support the motion that some bridging aid should be given to British Leyland.
British Leyland is a national asset, and what is at stake now is the future of the only wholly-owned British motor company, our biggest single exporter, and the employer of 200,000 workers, which really means that probably more than 500,000 people are directly dependent on the prosperity of the company.
Only today, the company's cash difficulties were underlined by the unhappy financial report issued by Lord Stokes. What is clear from it is that the bankers have given a vote of no confidence in the present administration of the company in existing circumstances.
The real question for this House is why we should make a contribution of £50 million worth of preliminary support to the company unless there is some structural change within the company, and some assurances that its future strategy will be in accordance with the country's needs and will be designed to promote the prosperity not only of the workers most

intimately concerned but also of the nation as a whole.
When I say that this is a preliminary contribution, it is clear that the £50 million which the company is immediately asking for is merely to replenish stocks which cannot be replenished at present, first, because the bankers will not give the necessary support and, secondly, because of inflation there is not the cash flow available to provide the stocks required. If we look further ahead, we see that something like a further £350 million of support will be needed to re-equip the company if it is to be able to compete with the giants of the motor industry.
There is something slightly ominous about this order. It reminds me unhappily of cash handouts in the past which ultimately dribbled away into the quicksands. Some people regard public support as being some sort of bran tub, and it can become a bottomless pit, which the Concorde eventually became, into which public money is poured, without accountability and without public control. When money is asked for in these circumstances, without the guarantees which I have talked about, I regard it as being a great confidence trick played upon the public.
It is wholly improper to extract money from the taxpayer unless there is a proper organisation capable of supervising the expenditure of the money and accounting for it, so that the Minister can come to the House and say, "The money which you voted to support the company has been paid out not simply as a sort of dole for those who have fallen on hard times, not as a kind of Christmas stocking to be filled by the taxpayer because of the season of the year, but as a constructive contribution to the future of the British motor industry".
We have to consider some matters of future strategy. We have to consider, for example, how to raise the productivity of the industry which at present is one of the lowest in the Western industrial world. I quote some figures from the Economist. Last year in Britain, the number of cars produced was six per worker. In Europe, it was 12 per worker. In Japan, it was 37 per worker. These are sinister, disturbing figures, wherever the fault may lie. It means that the amount of horsepower and the amount of investment put behind each


worker is very much lower here than it is abroad.
If we are asked to invest money in the motor industry, a second question must be answered. What will labour relations be like in the future? The hon. Member for Henley (Mr. Heseltine) very properly drew attention to the fact that industrial disputes have resulted in a lowering of output, inevitably. But the profounder question concerns the cause of these industrial disputes. It takes two to create a dispute. It is not unilateral Management has a great responsibility in this matter, and I revert to the question whether the management of British Leyland has been or is adequate to deal with this new investment of public money and to produce the results that we all want to see.
Finally, there is the question of competitiveness of the British motor industry and whether, in the world as it is, we really are in a position to tackle the big three or even the big four of the motor industry.
Tonight is the moment of truth for the British motor car industry. The oil crisis and the deepening world recession have plunged the industry everywhere into difficulties. A figure worth remembering tonight is that one-third of Detroit's labour force is either laid off or on some form of short time. That has relevance to Coventry, too. It used to be said that if Detroit sneezed, Britain's motor car industry caught pneumonia.
The symptoms are already there. Chrysler is already laying off men. Five of Chrysler's six American assembly plants have been shut down until after the New Year. There is redundancy and short time in Europe. Governments are intervening desperately to restructure their industries to deal with the already deepening recession. In the last year output has fallen by about 25 per cent. Perhaps the most disturbing figure is that European motor manufacturers now have over 800,000 new cars in stock, which is about half the number of our likely production this year.
These are symptoms of a very grave situation in our motor industry. This is a moment not for slogans, but for a real examination of the industry's problems.
I believe firmly in the public ownership of the motor industry, and that belief is reinforced by the fact that we are now

being called upon to provide this trailer, so to speak—perhaps my right hon. Friend will confirm it—of £50 million for what ultimately might rise to an investment of about £400 million. If so, this vast expenditure of public money should have an adequate form of public accountability and control, and I believe that public ownership must be the answer.
Having said that, I should add that, even if British Leyland were nationalised tomorrow, the industry's problems would not be solved by the wave of a wand. Nationalisation will not cure the malaise in the industry. Still less do I believe that my right hon. Friend's proposal—I take issue with him here—of bringing in Sir Don Ryder as the magic man of the industry, complete with his hatchet, will provide the urgent action required for the industry.
My right hon. Friend has named an eminent panel of investigators who are to inquire into what went wrong at British Leyland, and presumably to make recommendations for the future. I have known Mr. Harry Urwin for a very long time. He is an outstanding trade unionist with remarkable—indeed, unequalled— experience of the motor car industry who will obviously bring great expertise and benefit to the investigating committee. But that is not the point. If Sir Don Ryder is to apply a Beeching-like process of rationalisation to British Leyland —a sprawling, amorphous company which grew haphazardly without any logical and integral relationship between one part and another—if he is to apply that kind of Malthusian process of cutting down, I must warn my right hon. Friend and the House that there will be great resistance by those workers who, in this arbitrary way, are to be done out of their jobs.
I recall that in Coventry, when automation was first introduced, there was what was called an anti-automation strike. Some people called it the Luddite strike. Whatever it was, it was the immediate response of men, and women too, who felt that their jobs were in danger from new processes being introduced arbitrarily without consultation with them. They felt that they had not been allowed proper consultation, and therefore they objected. If that sort of process were to take place there would not only be anti-redundancy strikes but sit-ins on


a massive scale which, by definition, would be profoundly detrimental to the future of the industry.
I am speaking tonight because I want not only to tell my right hon. Friend about this but to suggest to him a means by which it would be possible so to consult those who are involved in this industry that there would be an assent that would in turn enable British Leyland to be the strong, productive and efficient industry which, with its managerial experience and skilled workers, it has been in the past and can be in the future.
I have urged my right hon. Friend to call a conference of all the interests involved, and I mean the Government, managers and shop floor workers, because it is not enough to pluck out a few established trade unionists, much as I respect them, and say that they are the people who will make the decisions, they are the people who will decide what will happen to the livelihood of so many men. I do not think that is the way to do it.
In reply to a Question of mine, my right hon. Friend said that he was already having discussions with the interests concerned. I do not believe that that kind of bilateral discussion is the way to do it. The first thing that is necessary is to have this general national consultation to create the right psychological climate in which people will feel that they are having some part in deciding what their destiny will be. If my right hon. Friend feels that the term "psychological" is too strong, let me tell him that this is the preparation for any pragmatic decisions that will have to be taken.
The sin of right hon. Gentlemen opposite in their policy of confrontation was that they made a unilateral diktat directed against workers with the Industrial Relations Act which produced the three-day working week and all the unhappiness and the disadvantages which flowed from it.
Let my right hon. Friend consider this question of a tripartite national conference. Let him not think that just because it involves so many people and there may be so many delegates it may turn into a national jamboree. I know that I can speak for the shop floor workers in Coventry with whom I am in close touch and with whom I have had consultations on this subject. I am certain

that they will not be prepared to receive a kind of ukase from outside that will tell them what they have to do, unless they are taken into the confidence of those concerned.
My right hon. Friend said that he will not publish the report because of conditions of commercial secrecy. It is in saying that that he is showing the weakness of his approach to this matter. If issues are to be shrouded in secrecy, if workers on the shop floor feel that facts are being kept from them, how on earth can my right hon. Friend expect to have their co-operation? How on earth can he expect to have their participation? What is necessary at British Leyland is not only a statement on the general facts, but a clear statement that if there is massive public investment there must be public ownership and accountability. In the interim, there must be a new deal at the top, and not only on the floor.
I have the greatest respect and admiration for Lord Stokes. I think he is a superb salesmen and I hope that, come what may, his talents will remain at the disposal of the company, but there comes a moment when the failure of a company —and tonight we are engaged in an inquest into the failure to obtain the proper cash flow of the company and the fact that it has run into its present difficulties, which I believe have been produced by top management—must lead one to say that there should be a change at the top. No person is sacrosanct in that respect. No person can be said to hold his position freehold, and that applies not only to politics but to an important national company such as British Leyland. I hope that my right hon. Friend will consider, as a condition of the contribution that we are being asked to make tonight, an urgent inquiry into the top management at British Leyland.
Some of the workers who live in my constituency have summed up the situation very simply. They have said that there are more sheriffs than cowboys at British Leyland. That is a matter which should be investigated. How has the management been conducted? Is it being conducted properly in a financial sense?
I ask this specific question of my right hon. Friend. Is it true that if Lord Stokes were to retire he would receive a terminal payment of £400,000? I ask that question because that statement has been made. If there is any truth in it,


there is something seriously wrong with the financial organisation of a firm which can vote its top management, however indispensable it may seem, such a fantastic figure. I hope that question will be answered tonight. If hon. Members are being asked to vote £50 million, we ought to know whether almost half a million pounds of that sum may be paid to one manager as a golden handshake.
In conclusion, may I say that I want to see a new mood of co-operation and purpose both at the top and on the shop floor. The Opposition are fond of talking about co-operation. The workers of British Leyland want nothing more than to have the opportunity of working on, and producing, cars. They want to help exports. They want to participate in a great national effort. Let them make a new start in promoting a state of affairs where strikes will be a thing of the past. That new start can be made only if the workers are brought into consultation and given the chance of participation. I hope and believe that eventually, out of the restructuring of British Leyland, the workers will have a participatory place on the board, and that they will be able to feel integrated into a firm of which they are an essential part. In that way I hope that, with the assent of the 200,000 workers of British Leyland, we can make a new beginning in which this great national firm will be able to work in the interests of the nation as a whole.

Mr. Speaker: Order. We have only until half-past twelve to complete this debate. I hope we shall have rather shorter speeches.

11.12 p.m.

Mr. Hal Miller: Before addressing myself to the motion, I should like to pay a tribute to the management and men of British Leyland who purposely and productively worked to create this great enterprise under the direction of the noble lord, Lord Stokes, and the managing director, Mr. John Barber. I should like to place this great enterprise within the context of the British economy to show that it truly deserves the name British Leyland, particularly in view of the fact that the firm employs about 200,000 people.
The products of British Leyland account for 4 per cent. of British exports,

and represent approximately one-third of the contribution of the entire motor industry. That industry has consistently accounted for about 10 per cent. of capital investment formation in this country, 12·5 per cent. of exports and approximately 15 per cent. of employment in the engineering industry. It is right that we should bear those figures in mind when we consider this motion.
I hope that the Minister, when he replies to the debate, will take the opportunity to correct the impression made by the hon. Member for Coventry, North-West (Mr. Edelman). The motion will enable a back-up to be provided to allow the commercial banks to lend to this company an additional amount of money over the current borrowing limits. I stress that this company is fully satisfied that it is capable of servicing those loans, so there is no question of this money disappearing down some bottomless pit. I hope that the right hon. Gentleman will underwrite those remarks.
I turn next to the question why British Leyland has got itself into the position, not of failing, as some hon. Members have said, but of bumping up against its borrowing limits because of the erosion of its borrowing base, partly because of the fall in its share value. The company could be purchased on the stock market today for £39 million.

Mrs. Audrey Wise: Would the hon. Gentleman agree that it would not be a bad use of public money to do just that, and have complete public accountability?

Mr. Miller: I see no case for the public purchase of British Leyland.
The company's borrowing base has been eroded and it has had to use a great deal more working capital—£190 million —because of inflation, the increased cost of inventory, higher interest charges and the higher wages paid. There is also another £80 million in pensions, national insurance contributions, increased costs of steel and other overheads. That is why the company has been brought up against its borrowing limit. There is no question of its having failed.
The motion guarantees borowing for a temporary period while the inquiry takes place. I support it, but I should like


the Secretary of State to direct the attention of the inquiry not only to the circumstances of the company but to the outside circumstances which have brought it into this position, particularly acts of the Government.
We were told that one of the objects of the inquiry would be the company's markets. It is important to realise that the management has taken a strong decision to concentrate its marketing effort on Europe, because its share of the European market has been very low and that market, despite the current troubles, has grown much faster than our own market over the past ten years. The uncertainty created in the company by the Government's failure to resolve their position on Europe is damaging the marketing strategy and management morale. Some clear statement of the Government's position would therefore be of great help.
The whole motor industry lost 465,000 cars as a result of strikes in 1973, and this year it has already lost 500,000, which, at a unit price of, say, £1,000 is a large sum—and these are all profitable cars, above the break-even point. One consequence of a heavy capital investment is a much higher break-even point. There is, therefore, a serious need to ensure that that capacity is fully utilised. But the whole situation in the British industry is such that the utilisation of capacity has been dropping over the past five years. I hope that the inquiry will direct its attention to this matter.
However, this loss of cars through industrial disputes must be faced. I am not one of those who take an anti-union attitude. I have had valuable consultations with union officers on this subject. But the sad truth of the matter is that the union officers, as well as the management, have lost control of the situation. It is the direct shop-floor power—so much beloved by the right hon. Gentleman— which has brought about this situation.

Mr. Leslie Huckfield: Absolute nonsense.

Mr. Miller: If the hon. Gentleman had the number of constituents who work at Longbridge that I have, he would know something about this matter. Many people in those factories wish to work for 52 weeks of the year, and not for the 36

weeks which mindless people have inflicted upon them. They want to earn their wages for a full year, as do most people in this country. This disruption must be faced, and the Government have a responsibility to come clean on the subject.
The third matter for which the Government have very direct responsibility is the use that they have made of the motor industry as an economic regulator, which has led to very severe fluctuations in demand in this country with consequential effects on employment and earnings. The work force has at some times been compelled to work long periods of overtime and at other times has been on short earnings. Until there is more consistency and continuity in Government policy, there will always be these difficulties, which are so easy to seize on as an excuse for industrial action.
From what I have said, I hope that the House will accept that this great company is not going under at present and that it is in a position to continue without Government assistance by reducing its activities. It is only because it is thought to be in the national interest that the volume of exports to which I have referred and some of the employment should be maintained that there is a ground for bringing forward Government assistance now. But that assistance need not necessarily include a direct Government investment. As has been pointed out by my hon. Friend the Member for Henley (Mr. Heseltine), the immediate transfer of shares of itself will achieve nothing.
What is needed is a firm statement and a commitment from the Government on the points I have mentioned—namely, the EEC, militant activity against the best interests of the trade unions, continuity and consistency of Government economic policy, and a determined attack on interest rates and inflation in general. I hope that the right hon. Gentleman will give us an outline of the Government's thinking on these matters.

11.24 p.m.

Mr. Ray Carter: I shall be as brief as possible as I am aware that other hon. Members wish to speak in the debate. However, as 25,000 out of the 200,000 workers involved live in my constituency, not only did I want to take some part in


the debate but I think that it would have been expected of me.
There will be no surprise at the present troubles of British Leyland. If there is any surprise, it is that they took so long to come about. I say that because over the past few years, particularly the past year, British Leyland has battled against some enormous problems. It has had in addition the structural problems to which the hon. Member for Henley (Mr. Heseltine) referred. But in the past 12 months it has had the three-day working week, the oil crisis, falling demand, and foreign competition, which in recent months has reached enormous proportions.
In my opinion, however, all those circumstances amount to the straw which broke the camel's back, and the real problem which British Leyland has faced over the past decade rather than two or three years has been the problem of investment. This has been referred to time and again by Lord Stokes and other members of the board of the company. That is the root cause of the trouble, and it has to be tackled.
The problems facing the company in that respect are now revealed by the fact that every car it makes it can sell, and there is not one in stock. If productivity had been higher, if production had been higher, the company, with all its difficulties, would probably not have been in the position it is in now.
In my view, whatever be the solution arrived at now, we must ensure that the crisis within the company is solved and, one hopes, solved for good. The car is with us to stay. What is more, it is our biggest export earner, and the industry is one of the country's major employers. In the West Midlands, one in four of all industrial workers works either in the car industry or in an industry associated with it. So it is no laughing matter for us in the West Midlands. Whatever happens as a result of the crisis and of the inquiry, we must find some long-term solution. Failure now could lead ultimately, I believe, to disaster.
What should the Government do? I echo what was said by my hon. Friend the Member for Coventry, North-West (Mr. Edelman) and by others of my hon. Friends who intervened at various points in the debate. Complete public ownership, it seems to me, is the only way out. I

say that because the industry appears to have been rejected by the private sector. If support from the private sector were still there, British Leyland would not have had to come to the Government.

Mr. Reginald Eyre: May I refer the hon. Gentleman to the company's report for the year ending September 1974:
All industrial companies in the United Kingdom are affected by inflation, but British Leyland is particularly vulnerable because production loss over the years due to strikes has prevented the building up of reserves for difficult times".
Will the hon. Gentleman pay due regard to that?

Mr. Carter: I know that the hon. Gentleman takes a great interest in the car industry, as any West Midlands Member does, and he is a Birmingham Member. But what he should bear in mind—I feel that we should not make flippant points, and I am not suggesting that that was—is that every car industry in the world has this problem. It does not apply only to British Leyland. True, British Leyland has more of a problem in this area than other companies have in other countries, but one cannot reliably compare one company with another or one country with another. Indeed, if we did we could come up with some quite alarming facts and figures.
If there is one thing I have learned in five years of association with my constituency, with British Leyland and with the 25,000 people who work in the industry, it is that there are no simple solutions. Public ownership has been referred to. I know, and my shop stewards in the car factories know, that even if we took this industry into public ownership tomorrow, we should still have the job of producing motor cars, and nobody really likes doing it.
I believe that a large part of the difficulty which we experience in industrial relations in the car industry is bound up with the difficult nature of the job of actually making cars. I take the point that no strikes are acceptable, and certainly one loses production, but it is not a pleasant job. I am afraid that we have to live with a certain degree of disruption in the industry.
I said that public ownership was the only way. Perhaps some other solution will be arrived at, but we must insist,


from the Government side, that any money invested by the Government in British Leyland is taken as a public stake in that industry. I am afraid that the measures adopted in the past, by the IRC and other bodies, for investing public money have not given the degree of public accountability that the taxpayer and we, as a Parliament, should expect. That is the first political requirement that we can make of any public investment.
This may be the last chance for British Leyland—the last sector of the wholly British-owned part of the car industry. The workers in British Leyland at Long-bridge feel that. That is why a delegation came to the House yesterday, consisting of the whole of the works committee, accompanied by some people from Coventry, and made plain their fears.
For the information of hon. Members on the Opposition benches, these are not wild men; they are people with a long experience in the industry. The convener of the works committee—Dick Etheridge —has held his post in that factory for over 30 years, and others have been shop stewards or trade union officials in other capacities for more than 20 years. They realise that the company is in trouble and they want to do something to help it. That is why they came here yesterday —not thinking just of their jobs but of the future of their industry—the industry of which they are a part and of which they are proud to be a part. These people must be listened to. They have a point of view and they have a part to play in any restructuring of the company that may be decided upon.
We must remember that the days of imposed decisions are going. No more can Governments or companies say to workers, "This is how we think you should order your industrial life". Nowadays workpeople expect something better. We, as a Government and an institution here in Parliament, should capitalise on that and try to involve people as much as we can, particularly in times of crisis.
The works committee had a number of demands to make, some of which have been answered by the Secretary of State tonight. The first one was that Sir Don Ryder must involve the workpeople—by whom I mean the trade union—in any decisions made about the future of the

company; about the question of public ownership or about a BP-type solution. All these factors must be taken into account and be put fairly and squarely to the trade unionists involved, so that they can put their point of view.
The second point is that they are extremely worried about the suggestion by John Barber that there are certain loss-makers within the British Leyland empire. Mr. Barber referred in the Sunday Times a fortnight ago to the Cowley plant, and Longbridge. For the benefit of hon. Members, I should explain that these are the two plants that are in the volume car production area. Anybody who is making volume cars today is in a loss-making area. It is true that these two plants have not been making profits for a long time, but if we wish to maintain a presence in this field, Longbridge and Cowley must be kept in production. The earliest opportunity should be taken by the Government or by Sir Don Ryder to reassure the people at Longbridge and Cowley—I know that the Opposition Front Bench spokesman has many people in his constituency who work at Cowley and who would want to be assured on this point—that their jobs are secure.

Mr. J. W. Rooker: To reinforce my hon. Friend's point—these two plants make the most economically-running motor car that British Leyland produce. The man who buys a Jaguar does not give two hoots about the price of petrol, but to the man who buys a Marina or an Allegro it is a vital factor, and it is important that consideration should be given to that fact.

Mr. Carter: My hon. Friend is right. The finest range of quality cars at Long-bridge and Cowley are highly suited to the age in which we live, with petrol costing almost £1 a gallon.
The third point that the shop stewards raised with me and other hon. Members yesterday was the fact that no one had yet had put to him precisely what the state of British Leyland was. Tonight we are discussing £50 million to support the company, and yet no one knows precisely what the internal position of the company is, although we have had a statement about its financial position.
The fourth point is overseas investment. It is felt by many people that the export


of capital has jeopardised the employment prospects and possibly the standard and status of the company in Britain.
The fifth point concerns the import of Japanese cars. Last year we imported just under 90,000 Japanese cars while the total of British cars exported to Japan was only 1,200. We are not asking for a total ban on car trading with Japan, but we are asking for fair terms of trade.
Above all, and this is the sixth and final point—[HON. MEMBERS: "Hear, hear."]—I have tried to be as brief as possible.

Mr. Tom King: Is the hon. Gentleman aware that if the Government had had their way, the debate would have lasted only an hour and a half and that it is only because of the Opposition's strong representations that it is to last two and a half hours, and that he and his hon. Friend the Member for Coventry, North-West (Mr. Edelman) have already taken half an hour?

Mr. Carter: I must congratulate the Opposition on that. They have done a fine thing and rendered a great service to British Leyland and its employees. I should have been very disturbed if the debate had lasted only one and a half hours. However, the hon. Member has succeeded in lengthening my speech by two minutes, and I am not sure that everyone will be happy about that.
My sixth point reinforces what I said earlier about consultation with working people, and by that I mean people on the shop floor, the staff and the management. They want to become involved in the future of the company. They feel that they have a positive part to play in the future structure and future organisation of the company.
If that is done, there is a golden opportunity, even though this is a crisis situation for British Leyland, to ensure that the future of the company is secure.

11.38 p.m.

Mr. Nick Budgen: I find myself in the embarrassing position of agreeing with many of the sentiments that have come from the Government side of the House and not agreeing with my hon. Friend for Henley (Mr. Heseltine) that this is a holding operation. He believes that he can agree with the concept of an inquiry.

The debate will be seen throughout the West Midlands and the whole of the rest of the country as a preliminary to a major public stake in British Leyland. It will be seen as leading to public control of the whole company. It is wrong to pretend that this is just a mere holding operation.
If it were a mere holding operation, it would be grossly wrong to spend £50 million. One would expect one of the banks to be prepared to put up the money for a holding operation for an otherwise solvent company. I believe it to be a preliminary to massive Government expenditure and nationalisation which are wholly wrong in the circumstances in which the debate takes place.
The debate takes place at the end of two days of debate on the economy during which one subject on which there has been widespread agreement is the danger of the Government's vast borrowing requirement. Time and again hon. Members have mentioned the £6·3 billion requirement and its effect on already rising interest rates. One after another hon. Members have warned that we are perilously dependent on foreign borrowing. We are warned that if the Arabs do not continue to lend to us we must resort to the printing presses. We know from the rates revolt that there is no real chance of a major increase in taxation being forced upon the people. Yet tonight this measure is described as a mere holding operation when we know that it is the preliminary to a massive increase in Government spending.
The proposals are wrong in every way. I am against nationalisation not simply because I believe it to be inefficient. The case against nationalisation is not based upon efficiency or growth. It is based upon freedom. It is the case against the concentration of power into the hands of the State, and it is most of all the case against those who would wish to see all power of decision in the hands of politicians.
If there is this increased nationalisation there will be a repetition of the situation which occurs in the case of the British Steel Corporation. Plants are kept open because they are in marginal constituencies. Decisions are taken on that criteria and not according to the profit record of the plant in question. The


politician and not the business community holds sway.
I am opposed to this measure most of all because it is a preliminary to public expenditure of the order of £500 million, which is the figure Mr. Barber was referring to recently.

Mr. Leslie Huckfield: It will be at least that.

Mr. Budgen: It may be more, probably much more, and for the following reason. Unhappily British Leyland has had very bad labour relations. One of the main arguments of the company has been that it could not pay excessive rises because it would mean that the company would go bust. This did not happen between 1971 and 1974 because wage payments could be met out of easily obtained credit. Now the employees will be able to tell the management to get the money from the Government. I agree with the hon. Member for Nuneaton (Mr. Huckfield) that the figure may well exceed £500 million. It may be that the unions will go on demanding more and more and that they will get it, because this is no preliminary holding operation, it is the beginning of a massive handout.
The situation is even worse than that. It sets an appallingly dangerous precedent. It is grossly unfair that British Leyland will be bailed out because it is big.

Mr. Greville Janner: Is the hon. Member aware that if British Leyland is not helped thousands of small concerns all over the country, including my constituency, will go to the wall and their employees will be out of work? That is what this debate is all about.

Mr. Budgen: If the Government print more and more money there will be more and more inflation and we will simply delay the crunch for perhaps three or six months. But the crunch will come and the more its coming is delayed the worse it will be when it gets here.
The horrifying danger of this is that the little man will realise that, because he cannot influence the outcome of a particular election, because he does not command power in the places where the politicians make their decisions, he will not be bailed out in the way that the big companies are bailed out. Little men will

seethe with indignation in a year's time when they see how hardly treated they are compared with the big companies, and particularly when they realise how they are hit by inflation, increased rates and taxes, and the increased national insurance contributions of self-employed people.
This premilinary act of bailing out will divide the nation more than almost anything else. The Secretary of State sees himself as the great company doctor, but he is no more than a quack. He does not appreciate that British industry is an organic whole. Parts die and parts are born. Before a new part can be born an old part has to die. It is a horrible and inescapable fact of the market economy which the right hon. Gentleman so hates. If he sets himself up as a quack doctor and tries to tell all his patients that he has the secret of eternal life, when the relatives finally find that he is wrong the cynicism and disillusionment will be even greater than it would have been if he had told them the truth at the beginning.

11.47 p.m.

Mr. Evan Luard: I speak for the great majority of my constituents who work in the motor industry when I say that I warmly welcome the reiteration of support for British Leyland involved in the statement of my right hon. Friend the Secretary of State tonight. They will welcome it not merely as an expression of confidence in British Leyland and the British motor industry but as an expression of the Government's determination not to allow the genuinely British motor industry to collapse or fall out of British control.
The hon. Member for Wolverhampton, South-West (Mr. Budgen) has repeated things said widely in the House and in the Press. He has spoken of the operation as if it were the bailing out of a totally unsuccessful firm or industry. I contest that view. British Leyland has not had a totally unsuccessful record over the past year. It is true that in the first half it was not so successful, but the figures published today show that in the past six months its trading record has been much better. In its domestic operations alone it has had a substantial operating profit.
It is still less true of the British motor industry as a whole that it has recently


been operating at a loss or unsuccessfully. Compared with most of the other motor industries of the world, it has a remarkably successful record, given the present state of the market. In October the industry's exports were 36 per cent. higher than they were a year earlier, whilst imports were only 5 per cent. higher. Exports in the first 10 months of the year were 17 per cent. up, whilst our imports were only 10 per cent. up. That should be remembered by those who believe that our domestic market has been taken over by foreign manufacturers. The balance of trade for the whole of this year is likely to show a surplus of exports over imports for the industry of £1,000 million. That surplus is 32 per cent. higher than last year. In October alone it was 70 per cent. higher than last year. Those are remarkable figures, figures of an industry not doing at all badly.
It is true that the industry has suffered over the past year from two factors which every motor industry in the world has to contend with. One is the tremendous increase in the price of oil and of petrol which has inevitably caused a decline in the demand for motor cars. The second is the general recession in industry, not only in this country, but in other parts of the world. Taken together, those are severe handicaps for any motor industry or motor firm to contend with.
It is remarkable that the British motor industry has, on the whole, been affected by these problems much less than comparable industries in other countries. We have been reading in the past few months of the large numbers of men who have been put out of work or on short time or laid off temporarily by the major motor firms in most of the major industrial countries. The British industry has come off remarkably lightly compared with those countries. We have had a certain amount of natural wastage and a number of people have been temporarily laid off, but, on the whole, we have avoided making permanently redundant large numbers of people, as has happened in many other countries' motor industries. This is a good reason for us to have confidence in the future of the British motor industry and, therefore, a good reason to justify the measures announced by my right hon. Friend and his promise of further assistance in the investment programme of British Leyland.
Another charge often made against the British motor industry, and particularly against British Leyland, is that it has a particularly poor industrial relations record. The responsibility for this no doubt lies in many quarters, but management must take a large part of the responsibility. In my constituency there has not been one major industrial dispute in British Leyland in the past eight months.

Mr. Douglas Hurd (Mid-Oxon): Does the hon. Gentleman agree that at the Cowley plant, of which he and I have knowledge, the improvement to which he refers was the result of a remarkable revolution in the summer by which the troublemakers were turned out by the men because they believed that the trouble-making might drive the firm to bankruptcy? Does not he see a danger that the troublemakers at Cowley will be able to say, "We need not bother about that argument any more because the Secretary of State is at hand with his cheque book"?

Mr. Luard: There are many reasons for the great improvement in industrial relations at Cowley in the past eight or nine months. One of them may well be, as the hon. Gentleman says, that there has been a change in the leadership among the shop stewards. I do not know whether that is the main reason. There are many people working in British Leyland—and this applies all over the country—who are conscious of the serious situation of the company. It is a remarkable tribute to them that they have responded in this way and have determined to ensure the future prosperity of the company and of the motor industry generally.
There is not the slightest likelihood that, because the Government are offering the firm money, the great improvement in industrial relations will suddenly change and the men will turn out the existing highly respected leadership in the union and among the shop stewards, since many of the workers have noted the improvement and have welcomed what has happened. They have much more continuous work than before. Industrial relations in Oxford are extremely good, and it is a wild generalisation to say that there are bad industrial relations in the motor industry generally. The good industrial relations in Oxford are largely


due to a good union movement and a sensible relationship, but that could be achieved in other parts of the country.
I hope that the inquiry will note and remark upon the good situation in Oxford. When, for example, decisions are made about the distribution of investment, I hope that the sole consideration will not be whether a factory is making highly profitable models—which are often the most expensive models—but that consideration will be given to factories which have a good record and make cheaper models which are more economical in the use of petrol and will have a good future on the British motor market in years to come.
I hope that the inquiry will also note that the situation in Oxford is in some ways different from that in other parts of the country. I hope that there will be no major redundancies in the industry as a result either of the problems of the industry or of the inquiry, particularly in Oxford, because there is no other major manufacturing industry in Oxford to which displaced workers will be able to turn. That is not necessarily true in other parts of the country. In Oxford the motor industry is the only major manufacturing industry.

Mrs. Wise: Does my hon. Friend agree that it would be dangerous either to play off or allow to be played off one worker against another in various towns? Is it not the future of the car industry as a whole that is important?

Mr. Luard: I prefaced my remarks by saying that I hoped that as a result of the offer of Government support and of the inquiry there would be no redundancies in any part of the country. The points I have made are not irrelevant to the inquiry and will have the effect of ensuring stability of employment in Oxford.
There are two matters about which workers in British Leyland in my constituency and in the British motor industry as a whole will want to know. If the Government are to give a considerable volume of investment to British Leyland, the workers will expect the Government in return to acquire a share of the ownership of the company. In association with the share of ownership, the workers will expect a considerable measure of partici-

pation in the major decisions that are reached which affect their future. I hope that my right hon. Friend when he considers the report which Sir Don Ryder makes will bear that in mind.
Secondly, I hope that my right hon. Friend wil regard it as a major concern to maintain stability of employment within the industry as a whole. In certain cases there may need to be a continuation of the natural wastage which has been taking place over the last year or so. There are many people who have devoted their lives to the industry. They have worked within it for 20 or 30 years and will have difficulty in finding work elsewhere. One major result of Government assistance for the firm will be that many people in Oxford and elsewhere will have less fear for their future.
If those two conditions are met, my constituents and many others who work in the industry will warmly welcome the offer of Government support that has been made.

12 midnight.

Mr. Tom King: I want genuinely to speak briefly. It is a great pity, when so many hon. Members wish to speak, and the time for the debate has been extended, that so few on either side have been able to take part, with the result that the Secretary of State is to answer relatively few questions on an extremely important topic. I support the motion, but not with any pleasure. I am sure that none of us is pleased to see a great company of this country in such a condition. The motion is necessary. I endorse what my hon. Friend the Member for Bromsgrove and Redditch (Mr. Miller.) re-emphasised—that this is not money to British Leyland but a guarantee of money from the clearing banks, at normal commercial rates of interest, which, if the guarantee is not called in, will cost the Government nothing. It gives a holding period while the review is undertaken.
I fully support what my hon. Friend the Member for Henley (Mr. Heseltine) said about the needs which the review should meet. It is not going to be a pleasant review, as we all know. There is no secret magic formula which will protect the British motor industry from the problems facing the car industries of the world.
The only formula which has protected British Leyland so far has been the number of strikes and the fact that it is so far behind production that it has not faced so immediately the cuts in demand now taking place in the world. There is still some demand for its cars.
Any hon. Member trying to buy a British Leyland car over the last month or so will have experienced, as I have done, the greatest difficulty. I was promised a four-month delivery date. The hon. Member for Birmingham, Northfield (Mr. Carter) talked about how British Leyland should face foreign competition. We know that the keenest edge of foreign competition in the last two years has been in delivery, the fact that foreign competition has been able to deliver a car where the British industry has not been able to.
This motion has come before the real impact of the crisis has hit our industry. The extent of the worldwide crisis has not yet hit British Leyland. Its problems are domestic—domestic in the financial state of the country, inflation, and the domestic circumstances of the company itself. It has yet to feel the real impact of the cutback in world demand for cars.
The fact that we are in this situation now should bring home to all hon. Members that this is going to be an acutely difficult inquiry. My feeling is that every week it goes on it will be presented with figures for a lower and lower potential demand for cars from British Leyland.
Today, the Chancellor of the Exchequer admitted that the recession is now deeper than he forecast three months ago and that his expectation for world trade is now lower than it was three months ago. The inquiry will find that the prospects for British Leyland will be substantially lower this year than last, and that the forecasts will be chipped down again and again. Every time the Secretary of State asks the inquiry, "How are you getting on?" he will be told, "We are revising the forecast of demand for next year." The impact on employment is obviously very serious.

Mr. Peter Hordern: Whatever the report may conclude, it is essential that its conclusions be published, otherwise there can be no public accountability in the real meaning of the word.

Mr. King: I perhaps do not go wholly with my hon. Friend on that point. I accept that publication of a summary of the essential outlines is sensible, but I understand the problem about handing over in a public report certain facts to the company's competitors.
My concern is that the investigation and study may produce beyond peradventure the fact that British Leyland is really an unmanageable organisation. I do not so much criticise the management or the union leadership. I think that a lot of very good people find themselves in an impossible situation, one which needs examination to see whether it should be tackled. Companies of this size set up in this way will be seen as the dinosaurs of the 1970s. People will realise increasingly that real human industrial relations in the context of 1980 are not possible in the size of organisation represented here.
Finally, I ask one specific question. There are two members of the IDAB on the study group. Did the IDAB support this measure? The Secretary of State is taking it under Section 8, and Section 8 requires the Secretary of State to consult the IDAB. Did the IDAB support him?

12.5 a.m.

Mr. Leslie Huckfield: Without casting reflection on you, Mr. Deputy Speaker, I find it incredible that we should debate a company which employs 200,000—and I have 20,000 constituents involved in one way or another in Coventry and in British Leyland—and that less than half of the two and a half hours allotted to the debate should be given to speeches from the back benches. I am asked to compress my remarks into three minutes—

Mr. Janner: My hon. Friend is lucky.

Mr. Leslie Huckfield: That may be because of my 20,000 constituents.
Listening to the hon. Member for Henley (Mr. Heseltine), anyone would think it was unique that we should be trying to help save British Leyland. We have to realise that one of the most successful motor manufacturing companies in the world, Volkswagen, has been publicly-owned. We have to take note of the fact that one of the most successful motor manufacturing companies in Europe, Renault, is still publicly-owned. We have to remember


that another of the most successful in Europe, FIAT, still has a sizeable public chunk. We are doing nothing unusual. We are simply following the example of what is happening throughout Europe—

Mr. Heseltine: rose—

Mr. Huckfield: I shall not give way to the hon. Gentleman. I prefer to make my own speech.

Mr. Heseltine: On a point of order, Mr. Deputy Speaker. The House is listening to the hon. Member for Nuneaton (Mr. Huckfield) realising that he is curtailing his remarks in a way which he does not wish to do and which we do not wish to make him do. Many hon. Members on both sides of the House have not had a chance to contribute to the debate. Is it in order for me to propose that this debate should continue after the time allotted to it? Would such a motion be acceptable to you?

Mr. Deputy Speaker (Mr. Oscar Murton): I cannot at this stage make a decision on the matter.

Mr. Huckfield: I can only take note of the generous interruption of the hon. Member for Henley. I am sorry that I mistook his intention in rising just now.

Mr. Heseltine: Further to that point of order, Mr. Deputy Speaker. When you say that you cannot take a decision, is there any reason why I should not put such a motion so that this House might have an opportunity to consider the matter at greater length?

Mr. Deputy Speaker: It is for the Chair to accept or reject a motion. But I am not prepared to make a decision at this moment.

Mr. Huckfield: That leaves me about 30 seconds.
The alternatives facing the company are that we can either inject a substantial sum of public money and, I hope, take over the company completely, or we can let the company fall into American hands and go, ultimately, exactly the same way—

Mr. Janner: Or the Arabs.

Mr. Huckfield: As my hon. and learned Friend says, or the Arabs—as General Motors, Ford and Chrysler, with investment decisions, men's jobs and even where men stand on the production line put completely in the hands of Detroit or Dearborn. If we start on that road, we end up with American multi-national corporations manufacturing cars not in Britain but in Spain or South-East Asia.
Sir Don Ryder's inquiry team has to decide the kind of car industry that we are to have. Will it be a car industry which will compete only with BMW, Volvo, Mercedes-Benz and that type of car, or will it continue in the Austin-Morris range? These are the kind of concerns into which my right hon. Friend's inquiry will have to look.
I hope that, whatever comes out of the inquiry, British Leyland will be a publicly-owned company with the Government and workers at last having a say in its affairs, because, on behalf of my constituents, I want the British car industry preserved.

12.10 a.m.

Mr. Christopher Tugendhat: This short debate is a fitting epitaph to the day that we have spent debating the economy, because a constant theme through that debate has been that the country has not yet fully recognised the depth of the crisis in which it finds itself.
During the week when this great company, British Leyland, went to seek Government assistance, there were 11,000 men idle—not all on strike, but idle as the result of a strike—and pressure from the Cowley works for a £16 a week increase which would bring the main production rate up to £67·20.
The danger that we see in Government assistance to British Leyland is that everyone in the company—management as much as men—will feel that they can sit back and relax, that everything will be safe, that jobs will be safe, that pay increases will be guaranteed, and that the expansion programme will go ahead without difficulty.
I agree with the hon. Member for Coventry, North-West (Mr. Edelman) who, in a most interesting contribution, said that there is a danger, whenever there is Government intervention on this scale in a company of this kind, that it becomes


a kind of Christmas stocking. We shall want to hear from the Secretary of State how he proposes to ensure that it is not a Christmas stocking, or, to take another of the analogies suggested by the hon. Member for Coventry, North West, a bottomless pit. Those who work for British Leyland, at whatever level, must realise that Government assistance on this scale is not a soft option. and that all the difficult problems and decisions that faced the company before it went to the Secretary of State remain now just as they did then.
I particularly stress the importance of labour relations. The labour relations and industrial disputes record of British-Leyland has been very bad. One point not mentioned in the debate is that one achievement of the company in industrial relations has been the virtual elimination of piece-work and its replacement by a more logical system of payment. I think that we all recognise that the negotiations leading to that change were in themselves very difficult and complex and provoked —perhaps "precipitated" is a better word —a number of disputes. Now that the change has largely been carried through, it is to be hoped that industrial relations within the company will improve.
It is fair to point out that, though there have been difficulties on the union side, the management has not sufficiently recognised the importance of industrial relations. This was demonstrated by the fact that Mr. Pat Lowry was invited on to the main board only in 1972. A man with his job ought to have been on the main board much earlier.
The facts speak for themselves. There has been a loss of £92 million as a result of industrial disputes in the company's first six years and productivity, as the hon. Member for Coventry, North-West said, is among the lowest in the Western world.
There is no doubt that the Government will become increasingly involved in the affairs of British Leyland. Therefore, it is essential that the inquiry should pay particular attention to industrial relations. If, as the Secretary of State suggested, the workers are to play a more prominent rôle in the management of the company, we must look for improvement in that direction.
We must also look for improvement, given that the company is deeply in debt and living off the taxpayer, as it will be, for a degree of wage restraint which would not perhaps be necessary in a company which was not living off the taxpayer and was earning good profits.
Experience in the past of companies which have gone to Governments of both parties—Rolls-Royce comes to mind immediately—shows that the willingness of trade unions to restrain wage demands, when a company is living off the taxpayer, has so far been unhappy.
I hope that when the inquiry takes place and the Secretary of State becomes involved he will make certain that all sections of the company are consulted— middle management and upper management, quite as much as the trade unions —and that he will give sufficient weight to the opinions and ideas of the retail side of the motor trade. The retail side has a vast amount of capital tied up in the success or failure of the company and its opinions deserve to be taken into account.
I draw the attention of the Secretary of State to the interesting point made by my hon. Friend the Member for Bromsgrove and Redditch (Mr. Miller) who is extremely knowledgeable about the motor industry. He mentioned the difficulty that has faced British Leyland in planning its investment in Europe while the uncertainty about this country's future in Europe remains.
I hope, too, that the right hon. Gentleman will reconsider what he said about the publication of the report. We realise that some aspects of the company's affairs will have to remain secret. We realise that commercial information is at stake, but as much information as possible should be made available to this House, to the country and to the people who work in British Leyland if we are to form a reasonable judgment of the kind of decisions that the right hon. Gentleman takes.
If the country is paying for British Leyland, and if the people working there are dependent upon it, this House, the country and the workers have a right to as much of that report as can conceivably be published.

12.16 a.m.

Mr. Benn: I hope that I may have the leave of the House to reply to the points that have been made.
May I, in response to the argument that we should defer the matter because the debate has not been long enough, remind the House that we are debating and deciding something very real, namely, the issuing of guarantees with the authority of Parliament, and consequences would flow from not being able to do that. I hope the House will accept that we must reach a decision tonight.
I have noted most carefully all the points that have been made, and I know that other hon. Members who would have liked to do so have not been able to contribute to the debate.
It is not possible, and it would not be sensible to seek to anticipate the out come of the deliberations of the review team and of the unions, shop floor workers and management in British Leyland who, in my opinion, will be making a significant contribution to the study of the deep-seated problems of the firm. I do not see this is as an external study done in isolation subsequently to be imposed on the company by the agency of Government action.

Mr. Rodgers: Would it be possible to convey that to the individual plants? There is great appreciation of the Government's action, but will there be discussions at local level in which the workers will be involved?

Mr. Bean: It is the intention and desire of the Government that those who work in the plants, including those with shop floor responsibility and full-time trade union officials who represent the members, should not only have an opportunity, but should have an obligation, with their knowledge of the firm and their experience in it, to contribute constructively to a solution which the review team will have to find. There is no intention that this should be a secret, separate external examination with the results disclosed later to workers who would have had no part in making the recommendations.

Mr. Janner: Will my right hon Friend bear in mind that many hon. Members who are waiting to speak on this subject are considerably worried because in our

constituencies we have, for example, light engineering and other industries which depend on companies such as British Leyland for the livelihood and employment of their men? Will he take them into account in the inquiry and consult them and their workers in so far as that is possible so as to take their views into account when deciding what steps are to be taken?

Mr. Benn: I appreciate the concern of my hon. Friend who represents workers in component and other factories in Leicester. I should be misleading the House and confusing the exercise if I were to suggest that Sir Don Ryder and his team would be undertaking a study of all aspects of the British motor industry, including its compenents firms.
However, one of the factors we had in mind in making this proposal for a guarantee—as distinct from a receivership, which was canvassed and hinted at, though in fairness to the hon. Member for Henley it was not his view—was the disastrous effect that the company's failure would have upon supplies of components. I am very glad to have this opportunity to say that.
It follows from what I have said that, although we are bound to have regard to proper commercial confidentiality in not publishing to the world every detail of the British Leyland company—which is the only large British-owned motor company, whose commercial security we are bound to protect—the maximum degree of disclosure now by the management to the workers, as well as to the team, would be highly beneficial. One of the greatest problems of industrial relations is that workers, because they are usually not given the facts relating to the company in which they work, are limited by the ignorance imposed upon them to confine themselves simply to wage bargaining because they are not able to participate in discussions about investment, export markets, and about the general strategy of the company.
Although this is not the occasion on which to make the point, I see in this review an embryonic planning agreement developing in which workers, who have much to offer and who in my judgment have been attacked most unfairly in some of the speeches made this evening, might


perhaps begin to be able to contribute towards the solution of those problems.

Mr. Heseltine: So that the House is not limited by ignorance, will the Minister ensure that the summary published for this House to consider has the agreement of Sir Don Ryder?

Mr. Benn: I have undertaken in my opening statement to publish a summary of the recommendations. If the hon. Gentleman is not satisfied with my answer, I can say that the reservation I made relates to disclosure of commercial matters and not to any desire on my part to withhold recommendations which might not find favour in the mind of the Government. I was referring solely to the need to preserve a degree of confidentiality. That will be understood, bearing in mind the quality of the men who have agreed to serve on the review body.
Reference has been made to public ownership. If public money is to go into British Leyland there must and will be participation and accountability going with it. There is no question that that is right. That is the attitude we adopt.
Listening to the debate, I wondered whether those hon. Gentlemen who made points concerning the attitude of workers in industry fully took on board the consequences of what they were saying. Many hon. Members spoke as if, somehow, the mystical experience of redundancy was an essential ingredient of redeployment and national recovery. One hon. Member spoke in medical terms of the need for death and rebirth. I utterly reject the idea that it is the duty of the House, or indeed of any industrial policy, to seek to bring about redundancy to obtain the necessary redeployment.
Eight million people in Britain change their jobs every year. Even in 1971, which was a peak year for redundancies, there were only 370,000 redundancies. The idea is widely put abroad in the Press and elsewhere that somehow, unless evidence can be produced to show that blood has been shed in redundancy situations the nation is not applying its resources properly. That is a wholly Victorian notion which is entirely unacceptable to me and to the trade union movement. When men become redundant needlessly, as has happened, this is a major factor in creating restrictive practices throughout

industry, for workers feel that they are treated solely as factors of production and will necessarily devote much of their time to defending their jobs. Since this point was made, let me say that plainly.
Let me say something else about the references in the speeches of hon. Members opposite to motor car workers or the trade unions or trouble makers or shop stewards or whatever term they use in their arguments. Can any hon. Member recall any Press support ever being given to those involved in any dispute in the motor industry? Hon. Members who have visited the factories, as I have, and seen the track and the conditions under which motor cars are made know that, at its worst, this is the most boring and tedious work. Yet I cannot recall the grievances of motor car workers ever being described fairly in the popular Press. There is comment only when matters come to dispute. This applies equally to the unfair criticism of management, who have a formidable task in trying to get good production out of these conditions.
If no one in the party opposite or in the popular Press is prepared to turn his mind to the real problems of motor car production and what it does to men's lives, then it is no surprise that some of the disputes should be the means by which these matters are brought to the attention of the community. I say this with deep feeling because I believe that much of what is wrong with Britain lies in the sort of debate we have had tonight, in speeches about industry which are not coming from people with industrial experience—who are ready to attack— [HON. MEMBERS: "So are you."] I am not attacking. I have not attacked the management tonight. I said at the beginning that I did not believe that the heroes and villians approach to the problems of Leyland and British industry is the right approach.
Those who work in the industry, whether industrial workers or shop stewards or full-time officials or technical people or salaried management, right up to board level in British Leyland, would not think very highly of a debate which sought to make this problem the occasion for searching for scapegoats— [Interruption.] This was a great element in the debate, in which the hon. Members did not participate in any way.
Many of my hon. Friends have brought to my attention the anxieties which have been brought to their attention by the representatives of the workers who come to the House. It is manifestly true, first, that productivity has been low in the British motor industry and British Leyland because of a lack of investment in the past; second, that productivity can and must be increased; third, that the key to the economy of the West Midlands lies in and around the motor industry; fourth, that public ownership is the right way of dealing with public participation,

Question accordingly agreed to.

where it is required; fifth, that there must not be an attempt to handle this problem externally, without involving those who work in the industry, so that their skill can be brought into play—

Mr. Tom King: What about the IDAB?

Mr. Benn: I am grateful to the hon. Member. The IDAB had this matter reported to it.

Question put:—

The House divided: Ayes 149, Noes 13.

Division No. 41.]
AYES
[12.30 a.m


Allaun, Frank
Fernyhough, Rt Hon E.
Morris, Alfred (Wythenshawe)


Archer, Peter
Fitt, Gerard (Belfast)
Murray, Ronald King


Armstrong, Ernest
Flannery, Martin
Newens, Stanley


Ashton, Joe
Fletcher, Raymond (Ilkeston)
Noble, Mike


Atkinson, Norman
Ford, Ben T.
Oakes, Gordon


Bagier, Gordon A. T.
Fowler, Gerald (The Wrekin)
O'Malley, Brian


Bates, Alf
Garrett, John (Norwich S)
Ovenden, John


Bean, Robert E.
George, Bruce
Paisley, Rev Ian


Benn, Rt Hon Anthony Wedgwood
Gilbert, Dr John
Palmer, Arthur


Bennett, Andrew (Stockport N)
Golding, John
Parry, Robert


Bishop, Edward
Gould, Bryan
Pendry, Tom


Blenkinsop, Arthur
Graham, Ted
Richardson, Miss Jo


Brown, Hugh D. (Glasgow, Pr)
Grant, George (Morpeth)
Rodgers, George (Chorley)


Buchanan, Richard
Grant, John (Islington C)
Rooker, J. W.


Callaghan, Jim (Middleton &amp; P)
Hamilton, James (Bothwell)
Roper, John


Campbell, Ian
Hardy, Peter
Ryman, John


Carmichael, Neil
Harper, Joseph
Sandelson, Neville


Carson, John
Harrison, Walter (Wakefield)
Shaw, Arnold (Redbridge, Ilf)


Carter, Ray
Heffer, Eric S.
Silkin,Rt Hon John (Lewish)


Carter-Jones, Lewis
Horam, John
Smith, John (N Lanarkshire)


Cartwright, John
Hoyle, Douglas (Nelson)
Spearing, Nigel


Clemitson, I. M.
Hughes, Rt Hon C. (Anglesey)
Stallard, A W.


Cocks, Michael (Bristol S)
Hughes, Mark (Durham)
Stewart, Rt Hon Michael (H'smith F)


Colquhoun, Mrs Maureen
Hughes, Robert (Aberdeen N)
Stoddart, David


Concannon, J. D.
Irving, Rt Hon S. (Dartford)
Stott, Roger


Conlan, Bernard
Jackson, Miss Margaret (Lincoln)
strang, Gavin


Cook, Robin F. (Edin C)
Janner, Greville
Taylor, Mrs Ann (Bolton W)


Corbett, Robin
Judd, Frank
Thomas, Ron (Bristol NW)


Craigen, J. M. (Glasgow, M)
Kinnock, Neil
Tierney, Sydney


Crawshaw, Richard
Lamborn, Harry
Tinn, James


Cryer, Bob
Lamond, James
Tomlinson, John


Cunningham, Dr. J. (Whiteh)
Latham, Arthur (Paddington)
Urwin, T. W.


Dalyell, Tam
Leadbitter, Ted
Wainwright, Edwin (Dearne V)


Davidson, Arthur
Loyden, Eddie
Walker, Terry, (Kingswood)


Davies, Bryan (Enfield N)
Luard, Evan
Ward, Michael


Davies, Denzil (Llanelli)
Lyons, Edward (Bradford W)
Watkinson, John


Dormand, Jack
McCartney, Hugh
Watt, Hamish


Douglas-Mann, Bruce
McElhone, Frank
Wellbeloved, James


Duffy, A. E. P.
MacFarquhar, R.
Welsh, Andrew


Dunlop, J.
Mackenzie, Gregor
White, Frank R. (Bury)


Dunwoody, Mrs Gwyneth
Maclennan, Robert
White, James (Glasgow, P)


Edelman, Maurice
McMillan, Tom (Glasgow C)
Williams, Rt Hon Shirley (Hertford)


Edge, Geoffrey
Madden. Max
Wilson, William (Coventry SE)


Ellis, John (Brigg &amp; Scun)
Marks, Ken



Ellis, Tom (Wrexham)
Marquand, David
Wise, Mrs. Audrey


English, Michael
Marshall, Dr Edmund (Goole)
Woodall, Alec


Ennals, David
Mellish, Rt Hon Robert
Woof, Robert


Evans, John (Newton)
Miller, Hal (Bromsgrove)
Young, David (Bolton E)


Ewing, Harry (Stirling)
Miller, Dr M. (E. Kilbride)
TELLERS FOR THE AYES


Eyre, Reginald
Mitchell, R. C. (Soton, Itchen)
Mr. Laurie Pavitt and


Faulds, Andrew
Molloy, William
Mr. Donald Coleman.




NOES


Brotherton, Michael
Morgan-Giles, Rear-Admiral
Winterton, Nicholas


Budgen, Nick
Nelson, Anthony



Hooson, Emlyn
Penhaligon, David
TELLERS FOR THE NOES


Howell, Ralph (North Norfolk)
Powell, Rt Hon J. Enoch
Mr. John Biffen and


Howells, Geraint (Cardigan)
Smith, Cyril (Rochdale)
Mr. Ian Gow.


Lawrence, Ivan
Tebbit, Norman

Resolved,
That this House authorises the Secretary of State to pay or undertake to pay by way of financial assistance under section 8 of the Industry Act 1972 in respect of a guarantee or guarantees to be given to the bankers of British Leyland Motor Corporation Limited and any of its subsidiaries covering borrowing facilities made available by the bankers to those companies, insofar as the amount paid or undertaken to be paid under the guarantee or guarantees is in excess of £5 million but does not exceed £50 million.

Orders of the Day — WEALTH TAX

Ordered,
That Sir John Hall be discharged from the Select Committee on Wealth Tax and that Mr. Peter Rees be added to the Committee.— [Mr. Walter Harrison.]

Orders of the Day — STANDING COMMITTEE ON STATUTORY INSTRUMENTS

Motion made,
That Standing Order No. 73A (Standing Committee on Statutory Instruments) be amended as follows:—
Line 41, after the word 'hours' insert the words '(or, in the case of an instrument or draft instrument relating exclusively to Northern Ireland, two and a half hours)'.—Mr. Walter Harrison.]

Rev. Ian Paisley: On a point of order, Mr. Deputy Speaker. Is it in order for us to discuss this motion?

Mr. Deputy Speaker (Mr. Oscar Murton): No, it is not exempted business. It will not be in order to debate it.

Mr. J. Enoch Powell: Further to that point of order, Mr. Deputy Speaker. As it was difficult to hear what you said, I wonder whether you would tell the House whether we are on the motion dealing with Statutory Instruments or the motion dealing with Public Accounts.

Mr. Deputy Speaker: We are now on the motion dealing with Statutory Instruments. The question has not yet been proposed. Does the right hon. Gentleman wish to speak?

Mr. Powell: I await your proposing the motion in order to speak to it.

Mr. Deputy Speaker: Is the right hon. Gentleman desiring to object to the order?

If he is. the question cannot be debated now.

Mr. Powell: Object.

Orders of the Day — PUBLIC ACCOUNTS

Ordered,
That Mr. Guy Barnett, Mr. Richard Buchanan, Mr. Edward du Cann, Mr. Cant, Mr. A. P. Costain, Mr. David Crouch, Mr. Denzil Davies, Dr. John Gilbert, Mr. Peter Hordern, Mr. James Lamond, Mr. John Mac-Gregor, Mr. John Moore, Mr. Maurice Orbach and Mr. David Price be members of the Committee of Public Accounts.

Ordered,
That the members of the Committee of Public Accounts nominated this day shall continue to be members of the Committee for the remainder of this Parliament.

Ordered,
That this be a Standing Order of the House. —[Mr. Walter Harrison.]

ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dormand.]

Orders of the Day — HONG KONG

12.41 a.m.

Sir Paul Bryan: I shall be visiting Hong Kong in January. I am particularly glad to have this opportunity to hear the right hon. Gentleman's views on various topical subjects before I go. As the right hon. Gentleman's noble Friend, the Under-Secretary of State, is also due to visit the colony shortly, this debate may also provide an opportunity for his colleague in this House to express the Government's attitude to Hong Kong's problems in advance of his arrival.
From time to time Hong Kong comes under a wave of criticism. Such criticism is almost always based on failure to recognise that all economic thinking there is related to one basic reality—its dependence on foreign trade.
Hong Kong is almost wholly dependent on imported food, it produces no industrial raw materials, and its domestic market is not big enough to absorb more than a small proportion of its industrial production. Food is imported from


China, raw materials—textile fibres and plastics—largely from Japan. Hong Kong's processing industries use machinery imported from all over the world, and 80 per cent. of their finished products—predominantly textiles and clothing, electrical goods and plastic products—are exported mainly to the United States and the EEC.
This dependence on foreign trade leads inevitably to certain clear-cut economic policies. Due also to its origin as a trade entrepôt for China, Hong Kong believes in the virtues of free enterprise and free trade: low import duties, low taxation, unrestricted capital movements and equal treatment of locally based and foreign operations.
Firm and constant adherence to these policies has led to one of the most remarkable phenomena in history—the sevenfold growth in 25 years, on a tiny, inhospitable patch of this world, of a community from 600,000 to 4·2 million people. Let me emphasise, too, that the bulk of these 4 million people came to Hong Kong, often in the face of great hardship, of their own free will, and they remain there of their own free will.
Critics may say that these policies of low taxation and free enterprise have made the rich too rich. What they certainly have done is to attract investment from all over the world, resulting in highly efficient industry which alone can give good employment and a good living to this growing population. So these policies are the very reason for the existence of Hong Kong and its community. The prosperity that they have brought has been the main cause of the growth of the community.
This mushroom growth has in turn been the cause of huge social problems and it is to these that I should like to address my speech tonight.
I quote the Governor's speech to the Legislative Council on 16th October this year:
In the last quarter century, life in Hong Kong has been dominated by the way in which the growth in population outstripped the capacity of any government to provide for residents and immigrants alike some of the basic infrastructure of life. But the problem was faced and very great progress was made. So much so that two years ago your Government concluded that the time

had come when it would draw up programmes to make an end to these deficiencies forced on Hong Kong in the past and to do so within a measurable period. As a rough guide we set ourselves the time-span of a decade.
I pay particular tribute to the approach of Sir Murray Maclehose, the governor, and his team to these social problems. Anyone who thinks of Hong Kong as a purely materialistic, get-rich society and nothing else should read the governor's mammoth "State of the Nation" speech. Three-quarters of this speech is devoted to the plans for the social betterment of those who live their lives in the colony.
By now these long-term plans for housing, social welfare, education, medical and health services, are well under way. I shall be specially interested to see something of them during my visit.
Housing has been one of the biggest problems and biggest achievements in Hong Kong. What has been done is unique in the Far East, but the problems remain formidable. The plans of the new housing authority look like transforming the situation within the next 10 years. I should like to know from the Minister whether these plans are affected by the current downturn in trade, which Hong Kong shares with the rest of the world.
The education services have not been able to keep up with the needs of the rocketing population. The new White Paper gives real hope that this will be remedied. I find the plans for technical education and polytechnic and industrial training particularly encouraging and necessary, especially in a society that can prosper only by consistently maintaining a technical lead in industry.
To the outsider, one of the less creditable sides of the Hong Kong scene would seem to be its crime and corruption record. This problem is being tackled with a will. There has been a real breakthrough in recruitment for the police. Police techniques and training have been improved. The idea of mobilising people in neighbourhoods to help each other and the police to deter crime seems full of promise and, if successful, might well be copied in other countries.
Crime figures nevertheless are still rising. I must warn the Minister of State that when his colleague visits Hong Kong he will meet a very strong pressure to


reactivate the death penalty. One cannot generalise about the deterrent effects of capital punishment. It differs in varying societies. The people of Hong Kong seem almost unanimous in their belief that it would have a deterrent effect there.
Will the Minister say a word about the mass transit railway? This has every prospect of being one of the most remarkable engineering feats in the world. It was, therefore, naturally a disappointment when the contract was not won by the British consortium. The main reason for the success of the Japanese tender was the absence of an escalation clause. This seemed remarkable at the time but quite incredible now in the face of current Japanese inflation. Do the Japanese still maintain their original tender? If so, Hong Kong has certainly got a bargain.
The Minister will find a considerable sense of grievance among textile manufacturers regarding the EEC generalised scheme of preferences. A situation in which preferences in the British economy are given to Hong Kong's competitors but not to Hong Kong is quite impossible to explain or to justify. The exclusion of footwear has recently been removed but this is of small importance. I hope that the Government are making a supreme effort to negotiate the inclusion of textiles.
I appreciate that the Minister of State will not be able to deal with all my questions in 10 minutes tonight, but I should be grateful if those he is unable to answer orally could be answered by letter before I go to Hong Kong next month. There will be concern at the prospect of paying a higher share of defence costs, as foreshadowed in the latest defence review. The general assumption that this is a highly prosperous community well able to pay out more is not valid in today's conditions. The economy is sound. Indeed, we in this country could take some lessons in how Hong Kong has kept its economy sound in the face of worldwide inflation, shortage of material and depressed export markets. These economic difficulties coincide with quite exceptional capital expenditure necessary to carry out the social programmes I have mentioned. For these much additional finance by foreign loans and other means will have to be found. Now, therefore, would be a par-

ticularly unfortunate time to be saddled with a greatly increased defence bill.
I hope that the Minister of State will enjoy his first visit to Hong Kong. I believe that what will impress him most are the people. These people, with their ability, their ingenuity, realism and persistence, are the principal asset of Hong Kong. They are the explanation for its success and its hope for the future.

12.53 a.m.

Mr. Philip Goodhart: I am grateful to my hon. Friend the Member for Howden (Sir P. Bryan) and to the Minister of State for allowing me to intervene in the debate.
I wish to raise the question of the fate of refugees from China in Hong Kong. There have been reports in the Press of an agreement with the Peking Government that newly-arriving refugees from China who are apprehended by the Hong Kong police are handed back straight away to the Chinese Communist authorities. I know that the flow of refugees causes grave problems for the Hong Kong administration, but as my hon. Friend rightly reminded us, modern Hong Kong was built by refugees.
I hope that the Minister of State will confirm that we have not agreed automatically to hand refugees back for punishment at the hands of the Communist authorities from whom they have tried to escape, because such a course is inhuman and contrary to human rights.

12.54 a.m.

Mr. Hal Miller: As one who has spent half of the last quarter century in the service of the Hong Kong Government, may I urge the Minister to explain to my hon. Friend the Member for Beckenham (Mr. Good-hart) that it was always the practice during that period to return illegal entrants whence they came? There has always been a quota for the entry of those of Cantonese origin into Hong Kong as part of the original agreement dating back to the cession of the territory and the lease of it. Will the Minister of State confirm that the community of Hong Kong is in no shape to sustain an uncontrolled volume of immigration because of the great social problems to which my hon. Friend for Howden (Sir P. Bryan) referred?

12.55 a.m.

The Minister of State for Foreign and Commonwealth Affairs (Mr. David Ennals): I am grateful to the hon. Member for Howden (Sir P. Bryan) for raising the question of the United Kingdom's largest remaining dependency. I was glad to hear that he will be visiting Hong Kong. I am sure that as chairman of the Anglo-Hong Kong Parliamentary Group he will have a warm welcome. We look forward to hearing his impressions when he returns. It will be interesting for him to compare views with those of my noble Friend Lord Goronwy-Roberts, who is visiting Hong Kong shortly before he goes.
Hong Kong's population has grown from 600,000 in 1945 to 4¼ million today. The overwhelmingly Chinese population have chosen to live in Hong Kong of their own free will. This has been to the benefit of all. Up to this year real wages have increased by about 5 per cent. a year over the last 10 years and are now the highest in the region outside Japan.
The hon. Gentleman painted a glowing picture of the situation in Hong Kong, but it would be unwise to underestimate some of the serious problems. I am certain that he will become aware of them on his visit next month. Rapid expansion has brought congestion and grave social problems. In parts of Kowloon the population is over 400,000 to the square mile, 10 times the rate in Tokyo. There has been a grave shortage of housing. In the early 1960s there was an overwhelming squatter problem, which has even now not been completely resolved. Education and health services have had to be continuously expanded to meet the demand.
The Hong Kong Government's social programme, which started in 1972, is a 10-year programme to provide satisfactory living standards for all. It is an ambitious programme designed to meet urgent human needs.
As with so many other countries, world economic problems in the past year have posed great difficulties for Hong Kong, which is totally dependent on trade Exports are down this year compared with last year. The Government are faced with a need to raise new revenue, perhaps with new taxation, to keep the social programme going. Real wages have declined by about 12 per cent. this year, and future prospects are still doubtful. In this situation there may have to be

some review and rephasing of the social programme, but the Governor, who is now on a visit to London, has confirmed that the social programme will go forward.
The hon. Gentleman asked about the housing programme. The Hong Kong Government already house 1·56 million people, which is 38 per cent. of the total population. The 10-year housing plan aims to provide housing for an additional 1·8 million. The broad objective is to provide by 1984 acceptable self-contained accommodation for every family in Hong Kong. It is a massive programme by any standard. We all hope that it will continue.
As for the health and medical programme, the main proposal in the 1974 White Paper is a target of 5·5 hospital beds per thousand population by 1983. At present there are 4·1 per thousand. This compares with about nine per thousand in the United Kingdom.
Expenditure on social welfare should increase by about 80 per cent. between 1974 and 1978. This will be through a continued and expanded public assistance scheme, disability and infirmity allowances, and emergency relief.
The hon. Gentleman referred to the new 10-year education programme announced in October 1974. The main objective is to provide by 1979 nine years' subsidised education for every child up to the age of 14. In the senior secondary classes the aim is to provide places for 40 per cent. of the 15–16 year age group by 1979. This programme will remove one of the main criticisms of the educational system in Hong Kong, that children who have completed their primary schooling at the age of 12 have been left in limbo because there were no secondary school places for them and because they could not legally start work in industrial undertakings until the age of 14.
Recently there has been interest on both sides of the House in labour conditions. Determined efforts have been and are now being made to raise general labour standards by improvements in workmen's compensation, factory safety, paid holidays, severance pay and reduced hours of work. The legislation is backed up by a much strengthened inspectorate. Much remains to be done, but much has been achieved.
The employment of children under 14 in industry has long been a problem and last November a large-scale programme began to provide every child under 14 with an identity card complete with photograph. When that is complete, I hope we shall be able to say that that is one social problem of Hong Kong that has been solved.
Two key pieces of legislation have been enacted this year: first protection of workers against acts of anti-union discrimination; secondly, severance pay for workers who become redundant or are discharged through no fault of their own. The average industrial daily wage of about £2 a day in Hong Kong compares, for example, with 200 million people in India with a monthly wage of less than £2. But Hong Kong has also had its inflationary problems. The retail price index increased by 15 per cent. in the year ending June 1974, and with wages relatively static there has been a decline in real wages. Employment, however, has continued at a high level, although there has been some decline in employment over the past 12 months—a reduction of about 28,600 jobs in industry.
There has also been interest in Hong Kong's adherence to ILO Conventions. As at 1st June 1974, 20 conventions had been declared fully applied to Hong Kong and 10 had been declared applied with some modification. For purposes of comparison with ILO Member States in the area, 31 conventions had been ratified by Japan, 18 by the Philippines, eight by Malaysia, eight by Indonesia, and 21 by Singapore.
As has been said, crime is a major factor in Hong Kong.

Mr. James Lamond: My right hon. Friend has given an impressive recital of achievements in Hong Kong, many of which I saw when I visited the area last summer. I join hon. Members opposite in their admiration of what has been achieved. What worries me is the narrowly-drawn membership of the Legislative Council. Will my right hon. Friend try to find time in his reply to say something about any ideas he has to encourage broadening the membership of the Legislative Council to include, perhaps, some people from the lower levels of working life in Hong Kong?

Mr. Ennals: That matter is under consideration. There is no doubt that it would be of advantage to Hong Kong if it had a Legislative Council which was more representative of various social groupings in the colony, though there are considerable difficulties about constitutional changes for reasons which I think my hon. Friend, as well as hon. Members opposite, will recognise.
When my hon. Friend intervened I was about to say a few words about the crime problem. The 1,500 mutual aid committees set up by the Hong Kong Government are an important element in fighting the wave of violent crime but they are not a substitute for an effective police force. Progress has also been made in the reorganisation of the police force. I am glad that the hon. Member for How-den referred to that.
Although the death penalty still exists under Hong Kong law, no sentence of death has been carried out since 1966. There is no doubt that public opinion in Hong Kong still strongly favours the implementation of the death penalty in extreme cases. This is a difficult problem which we are examining with the Governor. The Member for Bromsgrove and Redditch (Mr. Miller), in an intervention, mentioned that immigration from China into Hong Kong has increased considerably in recent years. Estimated figures for both legal and illegal immigration were 74,000 in 1973, compared with 37,000 in 1972 and less than 13,500 in 1971. The Chinese Government have since taken some steps to reduce the number of legal immigrants entering Hong Kong, but the overall figures are still a matter for concern.
The arrangements for the return of illegal immigrants to China are generally a revival of procedures which fell into abeyance in 1967. The absence of their application has in recent years led to substantial increases in illegal entry. Estimates are 10,500 in 1971, 17,000 in 1972 and 18,000 in 1973. These numbers greatly added to the Hong Kong Government's task of improving social conditions in the Colony. I can assure the hon. Gentleman that all cases are considered on an individual basis before any action to return is taken. Full account is taken of any special circumstances or cases of genuine hardship.
We are committed to seeking substantial improvements for Hong Kong in the enlarged EEC. Hong Kong already benefits under most of the Community's Generalised Scheme of Preferences. In terms of total duty remitted, only Yugoslavia receives greater benefit than Hong Kong. The scheme will be extended in 1975 to cover some Hong Kong footwear, and we intend to press for the extension of the scheme to Hong Kong's textiles in 1976.
Hong Kong will also be negotiating with the Community for the conclusion of a bilateral agreement for the regulation of Hong Kong's textile exports under the GATT Multi-Fibre Textile Arrangement. We intend to use our influence as far as possible towards the achievement of

greater liberalisation for Hong Kong's textile exports in keeping with the spirit of the Multi-Fibre Arrangement.
In the short time available I have sought to answer most of the questions. I shall look carefully at HANSARD to see whether there are any questions that I have not covered. I feel that the visit of my noble Friend the Under-Secretary of State and that of the hon. Gentleman will be much appreciated in Hong Kong, and I am sure the House will be interested in such reflections as the hon. Gentleman has when he returns from the colony.

Question put and agreed to.

Adjourned accordingly at eight minutes past One o'clock.